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: 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: $ 55,000 280,000 10,000 192,500 671,000 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 (12%; due in 20x6) Common stock Retained earnings Total liabilities and stockholders' equity $1,208,500 $ 257,250 18,000 3,600 360,000 500,000 69,650 $1,208,500 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 70 percent of total sales. Intercoastal's credit experience indicates that 20 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 30 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: > 3. Hanson has estimated that Intercoastal's other monthly expenses will be as follows: $ 34,000 16,000 Sales salaries Advertising and promotion Administrative salaries Depreciation Interest on bonds Property taxes 34,000 20,000 3,600 900 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 $40,000. 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 $75,000 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. 1. Sales budget: Answer is complete and correct. 20x0 20x1 December January February March First Quarter $ 1,820,500 Total sales $ 500,000 $ 550,000 $ 605,000 $ 665,500 Cash sales 150,000 350,000 165,000 385,000 181,500 423,500 199,650 465,850 546,150 1,274,350 Sales on account 2. Cash receipts budget: Answer is complete and correct. 20x1 January February March First Quarter 546,150 $ $ $ 181,500 84,700 Cash sales Cash collections from credit sales made during current month Cash collections from credit sales made during preceding month Total cash receipts $ 165,000 77,000 280,000 $ 522,000 199,650 93,170 338,800 631,620 308,000 574,200 254,870 926,800 $ 1,727,820 $ $ 3. Purchases budget: X Answer is complete but not entirely correct. 20x0 20x1 December January February March First Quarter $ 1,274,350 $ $ 423,500 $ Budgeted cost of goods sold Add: Desired ending inventory Total goods needed Less: Expected beginning inventory Purchases $ 500,000 X $ 150,000 650,000 $ 350,000 300,000 $ 385,000 211,750 596,750 192,500 404,250 $ $ 232,925 656,425 211,750 444,675 465,850 232,925 698,775 232,925 465,850 232,925 $ 1,507,275 192,500 $ 1,314,775 $ Answer is complete and correct. 20x1 January February March First Quarter Inventory purchases: Cash payments for purchases during the current month Cash payments for purchases during the preceding month Total cash payments for inventory purchases 121,275 257,250 133,403 282,975 416,378 139,755 311,273 $ 394,433 851,498 $ 1,245,931 $ 378,525 $ $ 451,028 Other expenses: Sales salaries $ $ 34,000 $ 34,000 $ 102,000 Advertising and promotion Administrative salaries 34,000 16,000 34,000 21,600 16,000 34,000 16,000 34,000 48,000 102,000 21,600 Interest on bonds Property taxes 5,400 5,400 Sales commissions 6,050 95,450 5,500 111,100 489,625 6,655 90,655 18,205 297,205 Total cash payments for other expenses ] $ $ Total cash disbursements $ $ 511,828 541,683 $ 1,543,136 3. COMPIELE LE III St Lulee mes ville Surindly Casi puugel. Men uo lie dildiysis OI SI TOIL-Leul IIIIDIICITY needs in requirement 6. Then finish requirement 5. X Answer is complete but not entirely correct. 20x1 March First Quarter $ January 522,000 489,625 $ $ February $ 574,200 511,828 $ 62,372 631,620 541,683 89,937 $ $ $ 32,375 10,000 100,000 (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 1,727,820 1,543,136 184,684 10,000 100,000 (125,000) (100,000) (2,500) (75,000) (7,816) 55,000 (47,185) (100,000) (2,500) (75,000) $ $ $ 6. Calculation of required short-term borrowing. Answer is complete and correct. Projected cash balance as of December 31, 20x0 Less: Minimum cash balance Cash available for equipment purchases Projected proceeds from sale of marketable securities Cash available $ 55,000 40,000 $ 15,000 10,000 $ 25,000 125,000 $ (100,000) Less: Cost of investment in equipment Required short-term borrowing 7. Prepare Intercoastal Electronics' budgeted income statement for the first quarter of 20x1. (Ignore income taxes.) X Answer is not complete. INTERCOASTAL ELECTRONICS COMPANY Budgeted Income Statement For the First Quarter of 20x1 Sales revenue $ 1,820,500 $ 1,820,500 Gross margin Selling and administrative expenses: Sales salaries $ Advertising and promotion Administrative salaries 102,000 48,000 102,000 60,000 Depreciation Dronartu tavan 27nn Required information For the First Quarter of 20x1 Sales revenue $ 1,820,500 $ 1,820,500 Gross margin Selling and administrative expenses: Sales salaries $ Advertising and promotion Administrative salaries 102,000 48,000 102,000 60,000 2,700 Depreciation Property taxes Sales commissions 18,205 332,905 Total selling and administrative expenses Net income 8. Prepare Intercoastal Electronics' budgeted statement of retained earnings for the first quarter of 20x1. X Answer is complete but not entirely correct. INTERCOASTAL ELECTRONICS COMPANY Budgeted Statement of Retained Earnings For the First Quarter of 20x1 Retained earnings, 12/31/x0 $ 69,650 Add: Net income 186,445 Less: Dividends 75,000 Retained earnings, 3/31/x1 $ 181,095 X 9. Prepare Intercoastal Electronics' budgeted balance sheet as of March 31, 20x1. (Hint: On March 31, 20x1, Bond Interest Payable is $7,200 and Property Taxes Payable is $900.) (Round your answers to the nearest whole dollar.) INTERCOASTAL ELECTRONICS COMPANY Budgeted Balance Sheet March 31, 20x1 Cash 47,185 Accounts receivable 372,680 Inventory 232,925 Buildings and equipment 736,000 Total assets $ 1,388,790 Kona interest Pavanie IS LOOana pronartu Tavec Pavanie IS UOOLIvanna vour answers to ananaarest ! Required information INTERCOASTAL ELECTRONICS COMPANY Budgeted Balance Sheet March 31, 20x1 Cash $ 47,185 Accounts receivable 372,680 Inventory 232,925 Buildings and equipment 736,000 $ 1,388,790 Accounts payable Accounts receivable Administrative salaries Bond interest payable Total liabilities and stockholders' equity 0 Required information Duugeteu balance sheet March 31, 20x1 Cash $ Accounts receivable 47,185 X 372,680 232,925 736,000 Inventory Buildings and equipment Total assets $ 1,388,790 Total liabilities and stockholders' equity $ 0