Universal Electronics is a small, rapidly growing wholesaler of consumer electronic products. The firms main product lines are small kitchen appliances and power tools. The general manager of marketing has completed the sales forecast. She believes the sales during the first quarter of 20x1 will increase by 10% each month over the previous months sales. Then she expects sales to remain constant over the next several months. The companys projected balance sheet as of December 31, 20x0 is as follows:

Cash $28,000 Accounts receivable 276,000 Marketable securities 16,000 Inventory 154,000 Buildings and equipment 626,000 Total assets $ 1,100,000 Accounts payable $ 176,400 Bond interest payable 12,500 Property taxes payable 3,600 Bonds payable (10% due 20x6) 300,000 Common Stock 500,000 Retained earnings 107,500 Total liabilities and stockholders equity $1,100,000

Denise Gelia, the controller, is now preparing the monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1. Projected sales for December 20x0 are $400,000. Credit sales are typically 75% of the total sales. The companys credit experience indicates that 10% of the credit sales is collected during the month of the sale, and the remainder collected the following month.

2. The companys cost of goods sold is generally 70% of sales. Inventory is purchased on account and 40% of each months purchases are paid during the month of the purchase. The remainder is paid during the following month. 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 months projected cost of goods sold.

3. Denise has estimated the Universal Electronics other monthly expenses will be as follows:

Sales salaries $21,000 Advertising and promotion $16,000 Administrative salaries $21,000 Depreciation $25,000 Interest on bonds $2,500 Property taxes $900

In addition, sales commissions run at the rate of 1% of sales.

4. Universal Electronics president Reggie Shouse has indicated that the firm should invest $125,000 in an automated inventory handling system to control the movement of inventory in the firms warehouse just after the new year begins. The equipment purchase will be funded primarily from the firms cash and marketable securities. However, Shouse believes that the company should keep a minimum cash balance of $19,000. 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. Dana believes that the short-term interest rates will be 10% per year at the time of the equipment purchases. If a loan is necessary, Shouse has decided it should be paid off by the end of the first quarter, if possible.

5. Universal Electronics board of directors has indicated its intention to declare and pay dividends of $50,000 on the last day of the first quarter, if possible.

6. The interest on any short-term borrowing will be paid when the loan is repaid. Interest on the companys bonds is paid semi-annually 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.