Universal Electric Company is a small, rapidly growing wholesaler of consumer electrical products. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Universal's general manager of marketing, has recently completed a sales forecast. She believes that the company's sales during the first quarter of next year will increase by 10 per cent each month over the previous month's sales. Wilcox then expects sales to remain constant for several months. Universal's projected balance sheet as at 31 December this year is as follows: Cash $ 35 000 Accounts receivable 270 000 Marketable securities 15 000 Inventory 154 000 Buildings and equipment (net of acc. depr.) 626 000 Total assets $1 100 000 Accounts payable Long-term loan interest payable Property taxes payable Long-term loan payable (10% p.a.) Share capital Retained earnings Total liabilities and shareholders' equity $176 400 12 500 3 600 300 000 500 000 107 500 $1 100 000 Jack Hanson, the assistant accountant, is now preparing a monthly budget for the first quarter of next year. In the process, the following information has been accumulated: . Projected sales for December this year are $400 000. Credit sales typically are 75 per cent of total sales. Universal's credit experience indicates that 10 per cent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. Universal's cost of goods sold generally runs at 70 per cent of sales. Inventory is purchased on credit, and 40 per cent of each month's purchases is paid during the month of purchase. The remainder is paid during the following month. In order to have adequate inventory on hand, the firm aims to have inventory at the end of each month equal to half of the next month's projected cost of goods sold. Hanson has estimated that Universal's other monthly expenses will be as follows: Sales salaries $18 000 Advertising and promotion 19 000 Administrative salaries 21 000 Depreciation 25 000 Interest on long-term loan 2 500 Property taxes 900 In addition, sales commissions run at the rate of 1 per cent of sales. Universal's managing director, Beth Davies-Lowry, has indicated that the firm should, just after the new year begins, invest $125 000 in an automated inventory- handling system to control the movement of inventory in the firm's warehouse. To the extent possible, these equipment purchases would be financed from the firm's cash and marketable securities. Davies-Lowry believes that Universal needs to keep a minimum cash balance of $25 000. If necessary, the remainder of the equipment purchases would 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 5 per cent 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. . Universal's board of directors has indicated an intention to declare and pay dividends of $50 000 on the last day of each quarter. The interest on any short-term borrowing would be paid when the loan is repaid. Interest on Universal's long-term loan is paid semi-annually, on 31 January and 31 July, for the preceding six-month period. Property taxes are paid half-yearly on 28 February and 31 August for the preceding six-month period. Required: Prepare Universals annual budget for the first quarter of next year commencing 1 January by completing the following schedules and statements: 1. Sales budget Current Next year December January February March 1st quarter Total sales Cash sales Credit sales 7. Prepare Universal's budgeted income statement for the first quarter. (Ignore income taxes.) 8. Prepare Universal's budgeted statement of retained earnings for the first quarter. 9. Prepare Universal's budgeted balance sheet as at 31 March. (Hint: On 31 March, long- term loan interest payable is $5 000 and property taxes payable are $900.)