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 it largely with cash and marketable securitles, but if necessary we can get a short-term loan down at MetroBank." This statement by Beth Davles-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 appllances and power tools. Marcla Wilcox, Intercoastal's General Manager of MarketIng, has recently completed a sales forecast. She belleves the company's sales durling the first quarter of 201 will Increase by 10 percent each month over the prevlous month's sales. Then Wilcox expects sales to remain constant for several months. Intercoastal's projected balance sheet as of December 31,200, is as follows: 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 $600,000. Credit sales typically are 60 percent of total sales. Intercoastal's credit experlence 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 durling the month of purchase. The remainder 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: In addltion, sales commissions run at the rate of 2 percent of sales. 4. Intercoastal's president, Daves-Lowry, has indicated that the firm should invest $120,000 in an automated Inventoryhandling system to control the movement of Inventory in the firm's warehouse Just after the new year begins. These equlpment purchases will be financed primarly from the firm's cash and marketable securitles. However, Daves-Lowry believes that Intercoastal needs to keep a minimum cash balance of $40,000. If necessary, the remalnder of the equlpment purchases will be financed using short-term credit from a local bank. The minimum perlod 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. 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 dividends of $50,000 on the last day of each quarter. 6. The interest on any short-term borrowing will be pald when the loan is repald. Interest on Intercoastal's bonds is pald semiannually on January 31 and July 31 for the preceding slx-month perlod. 7. Property taxes are paid semlannually on February 28 and August 31 for the preceding slx-month perlod. Required: Prepare Intercoastal Electronics Company's master budget for the first quarter of 201 by completing the following schedules and statements. 1. Sales budget: 2 Cash recelpts budget: 3. Purchases budget: 4. Cash disbursements budget: (Round your inventory purchases up to the nearest whole dollar.) 6. Calculation of required short-term borrowing. 5. Complete the first three Innes of the summary cash budget. Then do the analysis of short-term financing needs in requirement 6 . Then finish requirement 5 . 7. Prepare Intercoastal Electronics' budgeted income statement for the first quarter of 201. (lgnore income taxes.) 8. Prepare Intercoastal Electronics' budgeted statement of retained earnings for the first quarter of 201. 9. Prepare Intercoastal Electronics' budgeted balance sheet as of March 31, 20x1. ( Hint: On March 31, 20x1, Bond Interest Payable Is $1,750 and Property Taxes Payable is $1,200.) (Round your answers to the nearest whole dollar.)
