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 Davies-Lowry, president of Intercoastal Electronics Company, concluded a meeting she had called with the firms top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firms main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastals General Manager of Marketing, has recently completed a sales forecast. She believes the companys sales during the first quarter of 20x1 will increase by 10 percent each month over the previous months sales. Then Wilcox expects sales to remain constant for several months. Intercoastals projected balance sheet as of December 31, 20x0, is as follows:

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"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 Davies-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: $ 55,000 280,000 10,000 192,500 Cash Accounts receivable Marketable securities Inventory Buildings and equipment (net of accumulated depreciation) 671,000 $1,208,500 Total assets Accounts payable Bond interest payable Property taxes payable Bonds payable (12%; due in 20x6) 257,250 18,000 3,600 360,000 500,000 69,650 Common stock Retained earnings Total liabilities and stockholders' equity $1,208,500 1. Projected sales for December of 20x0 are $500,000. Credit sales typically are 70 percent of total sales. Intercoastal's credit experience indicates that 20 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 30 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: $ 34,000 16,000 34,000 20,000 3,600 Sales salaries Advertising and promotion Administrative salaries Depreciation Interest on bonds 900 Property taxes In addition, sales commissions run at the rate of 1 percent of sales. 4. Intercoastal's president, Davies-Lowry, has indicated that the firm should invest $125,000 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 believes that Intercoastal needs to keep a minimum cash balance of $40,000. 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 believes short-term interest rates will 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 $75,000 on the last day of each quarter. 6. The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Intercoastal's bonds is paid semiannually 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 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: Answer is complete and correct. 200 20x1 First March December January February Quarter $ 550,000 $605,000 $665,500 $1,820,500 $ 500,000 Total sales 181,500 199,650 Cash sales 150,000 165,000 546,150 Sales on 350,000 1,274,350 385,000 423,500 465,850 count 2. Cash receipts budget: Answer is complete and correct. 201 First March January February Quarter $ $ 181,500 $199,650 $ 546,150 Cash sales 165,000 Cash collections from credit sales made during current month 77,000 84,700 93,170 254,870 Cash collections from credit sales made during preceding 280,000 926,800 308,000 338,800 month $ 522,000 $631,620 $ 574,200 Total cash receipts 1,727,820 3. Purchases budget: Answer is complete and correct. 201 200 First February December January March Quarter Budgeted cost of goods sold $385,000 $ 423,500 $350,000 $465,850 1,274,350 $ 232,925 Add: Desired ending inventory $192,500 $ 211,750 $232,925 $232,925 Total goods needed $ 596,750 $ 656,425 $698,775 $ 542,500 1,507,275 Less: Expected beginning inventory 175,000 192,500 211,750 232,925 192,500 $ 1,314,775 $367,500 $ 404,250 $ 444,675 $465,850 Purchases First January February March Quarter Inventory purchases: Cash payments for purchases during the current month $121,275 $133,403 $ 394,433 $139,755 Cash payments for purchases during the preceding month $139,755 $121,275 $133,403 $ 394,433 Total cash payments for inventory purchases Other expenses: Sales salaries Advertising and promotion Administrative salaries Interest on bonds 10 Property taxes Sales commissions Total cash payments for other expenses $ 0 $ 0 O 201 First Quarter January February March Cash receipts (from part 2) Less: Cash disbursements (from part 4) Change in cash balance during period due to operations Sale of marketable securities (1/2/x1) 0$ 0$ 0$ $ Proceeds from bank loan (1/2/x1) Purchase of equipment Repayment of bank loan (3/31/x1) Interest on bank loan Payment of dividends Change in cash balance during first quarter Cash balance, 1/1/x1 Cash balance, 3/31/x1 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 10 Less: Cost of investment in equipment Required short-term borrowing Total selling and administrative expenses 0 Budgeted Balance Sheet March 31, 20x1 $ 0 Total assets $ Total liabilities and stockholders' equity 0