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 20x1 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: $ 50,000 210,000 25,000 192,500 547,000 $1,024,500 Cash Accounts receivable Marketable securities Inventory Buildings and equipment (net of accumulated depreciation) Total assets Accounts payable Bond interest payable Property taxes payable Bonds payable (15%; due in 20x6) Common stock Retained earnings Total liabilities and stockholders' equity $ 183,750 9,375 2,400 150,000 500,000 178,975 $1,024,500 Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated: 1. Projected sales for December of 20x0 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. 2. 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. 3. Hanson has estimated that Intercoastal's other monthly expenses will be as follows: Sales salaries Advertising and promotion Administrative salaries Depreciation Interest on bonds Property taxes $ 35,000 16,000 35,000 15,000 1,875 600 In addition, sales commissions run at the rate of 1 percent of sales. 4. 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. 5. Intercoastal's board of directors has indicated an intention to declare and pay dividends of $50,000 on the last day of each quarter. 6. 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. 7. 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 20x1 by completing the following schedules and statements. 4. Cash disbursements budget: (Round your inventory purchases up to the nearest whole dollar.) Answer is not complete. 20x1 January February March First Quarter $ 222,338$ 202,125$ 183,750 385,875 $ 202, 125 424,463 232,925$ 657,388 222,337 X 608,212 X 455,262 $ 1,265,600 $ $ Inventory purchases: Cash payments for purchases during the current month Cash payments for purchases during the preceding month Total cash payments for inventory purchases Other expenses: Sales salaries Advertising and promotion Administrative salaries $ 35,000 $ 35,000 $ 16,000 35,000 11,250 16,000 35,000 35,000$ 16,000 35,000 Interest on bonds 105,000 48,000 105,000 11,250 3,600 18,205 291,055 Property taxes Sales commissions Total cash payments for other expenses 5,500 102,750 6,655 3,600 6,050 95,650 $ $ 92,655 Total cash disbursements 5. Complete the first three lines of the summary cash budget. Then do the analysis of short-term financing needs in requirement 6. Then finish requirement 5. Answer is complete but not entirely correct. 20x1 January February 529,000 $ 581,900 $ 488,625 520,113 $ 40,375 $ 61,787 $ 25,000 75,000 (125,000) Cash receipts (from part 2) Less: Cash disbursements (from part 4) Change in cash balance during period due to operations Sale of marketable securities (1/2/x1) Proceeds from bank loan (1/2/x1) Purchase of equipment Repayment of bank loan (3/31/x1) Interest on bank loan Payment of dividends Change in cash balance during first quarter Cash balance, 1/1/x1 Cash balance, 3/31/x1 March First Quarter 640,090 $ 1,750,990 547,917 X 1,556,655 X 92, 173 194,335 25,000 75,000 (125,000) (75,000) (75,000) (1,875) (1,875) (50,000) (50,000) 42,640 50,000 $ 92,460 7. Prepare Intercoastal Electronics' budgeted income statement for the first quarter of 20x1. (Ignore income taxes.) Answer is complete but not entirely correct. INTERCOASTAL ELECTRONICS COMPANY Budgeted Income Statement For the First Quarter of 20x1 Sales revenue $ 1,820,500 Cost of goods sold 1,274,350 Gross margin $ 546,150 Selling and administrative expenses: Sales salaries $ 105,000 Advertising and promotion 48,000 Administrative salaries 105,000 Sales commissions 18,205 Interest on bonds 5,625 Property taxes 1,800 Depreciation 45,000 217,520 Interest on short-term bank loan 1,875 Total selling and administrative expenses 548,025 Net income $ 215,645 OOO 9. Prepare Intercoastal Electronics' budgeted balance sheet as of March 31, 20x1. (Hint: On March 31, 20x1, Bond Interest Payable is $3,750 and Property Taxes Payable is $600.) (Round your answers to the nearest whole dollar.) Answer is complete but not entirely correct. OOOO INTERCOASTAL ELECTRONICS COMPANY Budgeted Balance Sheet March 31, 20x1 Cash $ 92,460 X Accounts receivable 279,510 Inventory 232,925 Buildings and equipment 547,000 X Accounts receivable x 125,000 x Total assets 1,276,895 Accounts payable $ 232.925 x Bond interest payable 3,750 Property taxes payable 600 Bonds payable 150,000 Common stock 500,000 Retained earnings 344,620 Accounts payable x Total liabilities and stockholders' equity $ 1,231,895 OOOOOO