Required Information The following Information applies to the questions displayed below We really need to get this new materlal-handling equipment In operation Just after the new year begins. I hope we can finance t largely with cash and marketable securities, but If necessary we can get a short-term loan down at MetroBank This statement by Beth Davles-Lowry. presldent of Intercoastal Electronics Company, concluded a meeting she had called with the firm's top management. Intercoastal Is a small, rapldly growing wholesaler of consumer electronic products. The firm's maln product lines are small kitchen appliances and power tools. Marcla Wlcox, Intercoastal's General Manager of Marketing, has recently completed a sales forecast. She belleves the company's sales during the first quarter of 20x1 will Increase by 10 percent each month over the previous month's sales. Then Wlcox expects sales to remain constant for several months. Intercoastal's projected balance sheet as of December 31, 20x0, Is as follows: Cash Accounts receivable Narketable securitie: 5 55,ee 243,889 28.803 138,68e 541,83e 5 997,6ee Total assets Accounts payable Bond interest payable Property taxes payable Bonds payable (18%; due in 28x6) Common stock S 153,76e 5,983 3.60e 129,80e 500,6ee 219,24e Total liabilities and stockholders equity S 997, 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 $360.000. Credit sales typically are 75 percent of total sales. Intercoastal's credit experience Indicates that 10 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 40 percent of each month's purchases are pald during the month of purchase. The remalnder Is pald 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 salarie: 5 28,88e 16,800 28.803 25,88 Interest on bonds Property taxes 1,883 9ee In addition, sales commissions run at the rate of 1 percent of sales. 4. Intercoastal's president, Davles-Lowry, has Indicated that the firm should Invest $110,000 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 primarlly from the firm 's cash and marketable securities. However, Davles-Lowry belleves that Intercoastal needs to keep a minimum cash balance of $25,000. If necessary, the remalnder of the equipment purchases will be financed using short-term credit from a local bank. The minlmum perlod for such a loan Is three months. Hanson belleves short-term Interest rates will be 10 percent per year at the time of the equlpment purchases. If a loan Is necessary, Davles-Lowry has decided It should be pald off by the end of the first quarter if possible. 5. Intercoastal's board of directors has Indicated an Intention to declare and pay divMdends of $50,000 on the last day of 6. The Interest on any short-term borrowng will be pald when the loan is repald. Interest on Intercoastal's bonds Is pald 7. Property taxes are pald semlannually on February 28 and August 31 for the preceding slx-month period. each quarter semlannually on January 31 and July 31 for the preceding six-month period. Required: Prepare Intercoastal Electronics Company's master budget for the first quarter of 20x1 by completing the followlng schedules and statements. 2 Cash recelpts budget 20x1 January February March First Quarter s 9e,000S 108.90o 119,790 $ 327.680 Cash sales Cash colections from credit saies made during current month 2 700 Cash collections from credit sales made during preceding month243000 Total cash receipts 2705 937 287,300 98307 29,700 294.030 804.330 371,700 408,870 449 7575 1,230,327 3. Purchases budget 20x0 December January 20x1 March First Quarter 252,000 277.200 $ 304,920 $ 335,412 917,532 138,800 152,480 $ 167,708 $ 167,708167,708 5 390,800 428,680$ 472,628 503,118 1,085,233 Less Expected beginning inventory128000 138,800 152.480 187.708 138,800 5 284,800 291,080S 320,188 335,412 948,633 February Budgeted cost of goods sold Add: Desired ending inventory Total goods needed Purchases 4. Cash dlsbursements budget 20x1 January February March First Quarter Inventory purchases Cash payments for purchases during the current month S 118,424 128,0 Cash payments for purchases during the preceding month158,780174,636 Total cash payments for inventory purchases Other expenses: 140873 192,100 302,702 S 332 9735 910,859 385,383 525,498 5 275,184 20,00020.000 $ 20,000 80.000 48.000 80,000 Sales salaries Advertising and promotion Administrative salaries Interest on bonds Property taxes Sales commissions 18,000 20.000 .010 18,000 18,000 20.000 20.000 5.400 13,108 5 65,980 65,758 $ 60,792 192 508 341,144 S 388.458 S 393,784 1,103,387 5.400 3.980 4,356 4,792 Total cash payments for other expenses Total cash disbursements 5. Complete the first three lines of the summary cash budget. Then do the analysis of short-term financing needs In requlrement (6). Then finish requlrement (5). March First Quarter Cash receipts (from part 2) Less: Cash disbursements (from part 4) 371.700 $ 408,870 $ 442.7 341.144 5 1,230,327 1,098,658 40,412S 62,701 133,689 20.000 60,000 110,000 60.000 1500 50,000 368,458 387,058 in cash balance during period due to 5 30,556 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, 1/1x1 Cash balance, 3/31x 20.000 60.000 110,000 60.000 1,500 5,000 47,169 6. Calculation of required short-term borrowing. Projected cash balance as of December 31, 20x0 Less: Minimum cash balance Cash avalable for equipment purchases Projected proceeds from sale of marketable securities Cash avalable Less: Cost of investment in equipment 5 55,000 25,000 5 30000 20.000 5 50,000 110,000 S (80,000) 7. Prepare Intercoastal Electronics' budgeted Income statement for the first quarter of 20x1. (lgnore Income taxes.) INTERCOASTAL ELECTRONICS COMPANY Budgeted Income Statement For the First Quarter of 20x1 Sales revenue st of goods sold Gross margin Selling and administrative expenses 5 1,310,780 917,532 5 393,228 Sales salaries Sales commissions Advertising and promotion Administrative salaries Depreciation Interest on bonds Property taxes Interest on short-term bank loan 5 60,000 13.108 48,000 60,000 75,000 ,000 3.000 Total selling and administrative expenses 285,108 et income 5 124,820 8. Prepare Intercoastal Electronics' budgeted statement of retalned eamings for the first quarter of 20x1. INTERCOASTAL ELECTRONICS COMPANY Budgeted Statement of Retained Earnings For the First Quarter of 20x1 Retained earnings, 12/31/x Add: Net income Less: Dividends Retained earnings, 3/31x1 S 210,240 124.220 50,000 284.480 9. Prepare Intercoastal Electronics' budgeted balance sheet as of March 31. 20x1. (Hint On March 31, 20x1, Bond Interest Payable Is $2000 and Property Taxes Payable Is $900) INTERCOASTAL ELECTRONICS COMPANY Budgeted Balance Sheet March 31, 20x1 Total assets Total liabilities and stockholders' equity