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Required information [ The following information applies to the questions displayed below. ] We really need to get this new material - handling equipment

Required information
[The following information applies to the questions displayed below.]
"We really need to get this new material-handling equipment in operation just after the new year begins. I
hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term
loan down at MetroBank." This statement by Beth Davies-Lowry, president of Intercoastal Electronics
Company, concluded a meeting she had called with the firm's top management. Intercoastal is a small,
rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen
appliances and power tools. Marcia Wilcox, Intercoastal's General Manager of Marketing, has recently
completed a sales forecast. She believes the company's sales during the first quarter of 201 will increase by
10 percent each month over the previous month's sales. Then Wilcox expects sales to remain constant for
several months. Intercoastal's projected balance sheet as of December 31,20x0, is as follows:
Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 201. In the
process, the following information has been accumulated:
Projected sales for December of 200 are $500,000. Credit sales typically are 60 percent of total sales.
Intercoastal's credit experience indicates that 30 percent of the credit sales are collected during the
month of sale, and the remainder are collected during the following month.
Intercoastal's cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account,
and 50 percent of each month's purchases are paid during the month of purchase. The remainder is paid
during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to
have inventory at the end of each month equal to half of the next month's projected cost of goods sold.
Hanson has estimated that Intercoastal's other monthly expenses will be as follows:
In addition, sales commissions run at the rate of 1 percent of sales.
Intercoastal's president, Davies-Lowry, has indicated that the firm should invest $125,000 in an automated
inventory-handling system to control the movement of inventory in the firm's warehouse just after the new
year begins. These equipment purchases will be financed primarily from the firm's cash and marketable
securities. However, Davies-Lowry believes that Intercoastal needs to keep a minimum cash balance of
$25,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit
from a local bank. The minimum period for such a loan is three months. Hanson believes short-term
interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary,
Davies-Lowry has decided it should be paid off by the end of the first quarter if possible.
Intercoastal's board of directors has indicated an intention to declare and pay dividends of $50,000 on
the last day of each quarter.
The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Intercoastal's
bonds is paid semiannually on January 31 and July 31 for the preceding six-month period.
Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period.
Required:
Prepare Intercoastal Electronics Company's master budget for the first quarter of 201 by completing the
following schedules and statements.
1. Sales Budget for Jan-Mar, First Quarter
2. Cash Receipts Budget Jan-Mar, First Quarter
3. Purchases Budget Dec-Mar, First Quarter
4. Cash Disbursements Budget Dec-Mar, First Quarter
5. Complete the first three lines of the summary cash budget. Then do the analysis of short term financing needs in question 6. Then finish question 5.
6.Calculation of required short term borrowing.
7. Prepare Intercoastal Electronics' budgeted income statement for the first quarter of 20x1.(ignore income taxes)
8. Prepare Intercoastal Electronics' budgeted statement of retained earnings or the first quarter of 20x1.
9. Prepare Intercoastal Electronics' budgeted balanced sheet as of March 31st 20x1.(Hint: on March 31st,20x1, Bond Interest Payable is $3,750 and property taxes payable is $600.
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