Saved -42 6 Line Tollowing 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 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 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: Cash Accounts receivable Marketable securities Inventory Buildings and equipment (net of accumulated depreciation) Total assets Accounts payable Bond Interest payable Property taxes payable Tonds payable (86; due in 2016) Common stock Retained earning Total liabilities and stockholders equity $ 35,000 288,000 20,000 154,000 550,000 $1,047,000 $ 220,500 5,000 6.000 150,000 500,000 165,500 $1.047.000 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 $400,000. Credit sales typically are 80 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 25 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 $18,000 Advertising and 16,000 promotion Administrative salaries *18,000 Depreciation 30,000 Interest on bonds 1,000 Property taxes 1,500 4. Intercoastal's president, Davies-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 primarily from the firm's cash and marketable securities. However, Davies-Lowry belleves that Intercoastal needs to keep a minimum cash balance of $30,000. 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 belleves short-term interest 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 repald. Interest on Intercoastal's bonds is paid semiannually on January 31 and July 31 for the preceding six-month period. 7. Property taxes are pala 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. 1. Sales budget 20x0 December January February March First Quarter Total sales Sales on account 2. Cash receipts budget: January February March First Quarter Cash sales Cash collections from credit sales made during current month Cash collections from credit sales made during preceding month Total cash reci 3. Purchases budget: Book 20x0 December January 20x1 February March First Quarter Budgeted cost of goods sold Add: Desired ending inventory Total goods needed Less: Expected beginning inventory Purchases 4. Cash disbursements budget: 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 Other expenses: Sales salaries Advertising and promotion Administrative salaries Interest on bonds Property taxes Sales commissions Total cash payments for other expenses Total cash disbursements cBook 6. Calculation of required short-term borrowing. 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 Les Cost of investment in equipment Rocuired short term borrowing 7. Prepare Intercoastal Electronics' budgeted income statement for the first quarter of 20x1. (Ignore income taxes.) INTERCOASTAL ELECTRONICS COMPANY Budgeted Income Statement For the First Quarter of 20x1 Selling and administrative expenses Total selling and administrative expenses 8. Prepare Intercoastal Electronics' budgeted statement of retained earnings for the first quarter of 20x1. INTERCOASTAL ELECTRONICS COMPANY Budgeted Statement of Retained Earnings For the First Quarter of 20x1 Rewind eings 123 Reede 31 9. Prepare Intercoastal Electronics' budgeted balance sheet as of March 31, 20x1. (Hint: On March 31, 20x1, Bond Interest Payable is $2,000 and Property Taxes Payable is $1,500.) INTERCOASTAL ELECTRONICS COMPANY Budgeted Balance Sheet March 31, 20x1 Total assets Toa t s and stockholders' equity