UniversalElectricCompanyisasmall,rapidlygrowingwholesalerofconsumerelectrical products. The firm's main product lines are small kitchen appliances andpower tools. Marcia Wilcox, Universal's general manager of marketing, has recentlycompleted a sales forecast. She believes that the company's sales during the first quarterof 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 projectedbalance sheetasat31Decemberthisyearisasfollows:

Cash	$35000
Accountsreceivable	270000
Marketablesecurities	15000
Inventory	154000
Buildings andequipment(netofacc.depr.)	626000
Totalassets	$1100000
Accountspayable	$176400
Long-termloaninterestpayable	12500
Propertytaxespayable	3600
Long-termloanpayable (10%p.a.)	300000
Sharecapital	500000
Retainedearnings	107500
Totalliabilitiesandshareholders'equity	$1100000

Jack Hanson, the assistant accountant, is now preparing a monthly budget for the firstquarterofnextyear.Intheprocess,thefollowinginformationhasbeenaccumulated:

• Projected sales for December this year are $400 000. Credit sales typically are 75percentoftotalsales.Universal'screditexperienceindicatesthat10percentofthecredit sales are collected during the month of sale, and the remainder are collectedduringthefollowingmonth.
• Universal's cost of goods sold generally runs at 70 per cent of sales. Inventory ispurchased on credit, and 40 per cent of each month's purchases is paid during themonth of purchase. The remainder is paid during the following month. In order tohaveadequateinventoryonhand,thefirmaimstohaveinventoryattheendofeachmonth equal to half of the next month's projected cost of goods sold. Hanson hasestimated thatUniversal'sothermonthlyexpenseswillbeasfollows:

Salessalaries	$18000
Advertisingandpromotion	19000
Administrativesalaries	21000
Depreciation	25000
Interestonlong-termloan	2500
Propertytaxes	900

Inaddition,sales commissionsrunattherateof1percentofsales.

• Universal's managing director, Beth Davies-Lowry, has indicated that the firmshould, 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. Tothe extent possible, these equipment purchases would be financed from the firm'scashandmarketablesecurities. Davies-Lowrybelievesthat Universalneedstokeepa minimum cash balance of $25 000. If necessary, the remainder of the equipmentpurchaseswouldbefinancedusingshort-termcreditfromalocalbank.Theminimum period for sucha loan is three months. Hanson believes short-term interestrates will be 5 per cent per year at the time of the equipment purchases. If a loan isnecessary, Davies-Lowry has decided it should be paid off by the end of the firstquarterifpossible.

• Universal'sboardofdirectorshasindicatedanintentiontodeclareandpaydividendsof$50000onthelastdayofeachquarter.

• 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 31July,forthe precedingsix-monthperiod.

• Propertytaxesarepaidhalf-yearlyon28Februaryand31Augustfortheprecedingsix-monthperiod.

Required:

PrepareUniversal'sannual budgetforthefirstquarterofnextyearcommencing1 Januarybycompletingthefollowingschedules andstatements:

1. Salesbudget

	Current	Nextyear
	December	January	February	March	1stquarter
Totalsales
Cashsales
Creditsales

1. Cashreceipts budget

Cashreceiptsbudget
	January	February	March	1stquarter
Cashsales
Cashreceiptsfromcreditsalesmadeduringcurrentmonth
Cashreceiptsfromcreditsalesmadeduringprecedingmonth
Totalcashreceipts

1. Purchasesbudget

	Currentyear	Nextyear
	December	January	February	March	1stquarter
Budgeted cost ofgoodssold
AddDesired endinginventory
Totalgoods needed
LessExpected beginninginventory
Purchases

1. Cashpaymentsbudget

Cashpaymentsbudget
	January	February	March	1stquarter
Inventorypurchases
Cash payments forpurchasesduringthecurrentmonth*
Cash payments forpurchasesduringtheprecedingmonth
Total cash paymentsforinventorypurchases
Otherexpenses
Salessalaries
Advertisingandpromotion
Administrativesalaries
Interestonlong-termloan
Propertytaxes
Salescommissions
Total cash paymentsforotherexpenses
Totalcashpayments

*40%of thecurrentmonth'spurchases(schedule3).

60%of thepreceding month'spurchases(schedule3).

Long-term loan interest is paid every six months, on 31 January and 31 July.Propertytaxesarealso paideverysixmonths,on28 Februaryand31August.

1. Completethefirstthreelinesofthesummarycashbudget.Thendotheanalysisofshort-termfinancingneedsinrequirement6,andthenfinishrequirement5.

Summarycashbudget
	January	February	March	1stquarter
Cashreceipts(fromschedule 2)
LessCash payments(fromschedule 4)
Changeincashbalanceduringquarterduetooperations
Saleofmarketablesecurities(2January)
Proceeds frombank loan(2January)
Purchaseofequipment
Repayment of bankloan(31March)
Interestonbankloan
Paymentofdividends
Changeincashbalanceduring 1stquarter
Cashbalance,1 January
Cashbalance,31 March

Analysisofshort-termfinancialneeds:

• Projectedcash balanceasat31Decemberincurrentyear
• LessMinimumcashbalance
• Cashavailableforequipmentpurchases
• Projectedproceedsfromsaleofmarketablesecurities
• Cashavailable
• LessCostofinvestmentinequipment
• Requiredshort-termborrowing.

1. Prepare Universal's budgeted income statement for the first quarter.(Ignore incometaxes.)
2. PrepareUniversal'sbudgetedstatementofretainedearningsforthefirstquarter.

1. PrepareUniversal'sbudgetedbalancesheetasat31March.(Hint:On31March,long-termloaninterestpayableis$5000andpropertytaxes payableare$900.)