Universal Electric Companyis a small, rapidly growingwholesaler of consumerelectrical products. The firms main product lines are small kitchen appliances and power tools. Marcia Wilcox, Universals general manager of marketing, has recently completed a sales forecast. She believes that the companys sales during the first quarter of next year will increase by 10 per cent each month over the previous months sales. Wilcox then expects sales to remain constant for several months. Universals 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	$176 400
Long-term loan interest payable	12 500
Property taxes payable	3 600
Long-term loan payable (10% p.a.)	300 000
Share capital	500 000
Retained earnings	107 500
Total liabilities andshareholders equity	$1 100 000

Jack Hanson, the assistant accountant, is now preparing a monthly budget for the first quarterof next year. In the process,thefollowing information has been accumulated:

• Projected sales for December this year are $400 000. Credit sales typically are 75 per cent of totalsales. Universals credit experience indicatesthat 10 per cent of the credit sales are collected during the month of sale, and the remainder are collectedduring the followingmonth.
• Universals cost of goods sold generally runs at 70 per cent of sales. Inventory is purchased on credit, and 40 per cent of each months purchases is paid during the month of purchase. The remainder is paid during the following month. In order to have adequateinventory on hand, the firm aims to have inventoryat the end of eachmonth equal to half of the next months projected cost of goods sold. Hanson has estimated that Universals other monthly expenseswill 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.

• Universals 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 firms warehouse. To the extent possible, these equipment purchases would be financed from the firms 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 purchaseswould be financedusing 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 quarterif possible.

• Universals board of directorshas 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 Universals long-term loan is paid semi-annually, on 31 January and 31 July, for the preceding six-month period.

• Propertytaxes are paid half-yearly on 28 Februaryand 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

1. Cash receipts budget

Cash receipts budget
	January	February	March	1st quarter
Cash sales
Cash receipts from credit sales madeduring current month
Cash receipts from credit sales madeduring preceding month
Total cash receipts

1. Purchases budget

	Current year	Next year
	December	January	February	March	1st quarter
Budgeted cost of goods sold
Add Desired ending inventory
Total goods needed
Less Expected beginning inventory
Purchases

1. Cash paymentsbudget

Cash payments budget
	January	February	March	1st quarter
Inventory purchases
Cash payments for purchases during thecurrent month*
Cash payments for purchases during thepreceding month
Total cash payments for inventory purchases
Other expenses
Sales salaries
Advertising and promotion
Administrative salaries
Interest on long-term loan
Property taxes
Sales commissions
Total cash payments for otherexpenses
Total cash payments

* 40% of the current monthspurchases (schedule 3).

60% of the preceding months purchases (schedule3).

Long-term loan interest is paid every six months, on 31 January and 31 July. Property taxes are also paid every six months, on 28 February and 31 August.

1. Complete the first three lines of the summary cash budget. Then do the analysisof short- termfinancing needs in requirement 6, and then finish requirement 5.

Summary cash budget
	January	February	March	1st quarter
Cash receipts (from schedule 2)
Less Cash payments (from schedule 4)
Change in cashbalance during quarter due to operations
Sale of marketable securities (2 January)
Proceeds from bank loan (2 January)
Purchase of equipment
Repayment of bank loan (31 March)
Interest on bank loan
Payment of dividends
Change in cashbalance during 1st quarter
Cash balance, 1 January
Cash balance, 31 March

1. Analysis of short-term financial needs:
   • Projected cash balance as at 31 December in current year
   • Less Minimum cash balance
   • Cash available for equipment purchases
   • Projected proceeds from sale of marketable securities
   • Cash available
   • Less Cost of investment in equipment
   • Required short-term borrowing.
2. Prepare Universals budgeted income statement for the first quarter. (Ignore income taxes.)
3. Prepare Universals budgeted statement of retained earnings for the first quarter.

1. Prepare Universals budgeted balance sheet as at 31 March.(Hint: On 31 March,long- term loan interestpayable is $5 000 and property taxes payable are $900.)