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:

Cash	$	55,000
Accounts receivable		360,000
Marketable securities		25,000
Inventory		192,500
Buildings and equipment (net of accumulated depreciation)		546,000
Total assets	$	1,178,500
Accounts payable	$	220,500
Bond interest payable		6,250
Property taxes payable		3,600
Bonds payable (10%; due in 20x6)		150,000
Common stock		500,000
Retained earnings		298,150
Total liabilities and stockholders equity	$	1,178,500

Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1. Projected sales for December of 20x0 are $500,000. Credit sales typically are 80 percent of total sales. Intercoastals credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month.

2. Intercoastals cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each months 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 months projected cost of goods sold.

3. Hanson has estimated that Intercoastals other monthly expenses will be as follows:

   Sales salaries	$	30,000
   Advertising and promotion		16,000
   Administrative salaries		30,000
   Depreciation		30,000
   Interest on bonds		1,250
   Property taxes		900

   In addition, sales commissions run at the rate of 2 percent of sales.

4. Intercoastals president, Davies-Lowry, has indicated that the firm should invest $115,000 in an automated inventory-handling system to control the movement of inventory in the firms warehouse just after the new year begins. These equipment purchases will be financed primarily from the firms cash and marketable securities. However, Davies-Lowry believes that Intercoastal needs to keep a minimum cash balance of $50,000. 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. Intercoastals board of directors has indicated an intention to declare and pay dividends of $50,000 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 Intercoastals 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 six-month period.

3. Purchases budget: 20x0 December 20x1 February January March First Quarter Budgeted cost of goods sold Add: Desired ending inventory Total goods needed Less: Expected beginning inventory Purchases $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 GA $ 0 4. Cash disbursements budget: 20x1 February March January First Quarter Inventory purchases: Cash payments for purchases during the current month Cash payments for purchases during the preceding month Total cash payments for inventory purchases Other expenses: Sales salaries Advertising and promotion Administrative salaries Interest on bonds Property taxes Sales commissions Total cash payments for other expenses Total cash disbursements 5. Complete the first three lines of the summary cash budget. Then do the analysis of short-term financing needs in requirement (6). Then finish requirement (5). 20x1 January February March First Quarter 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) 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 7. Prepare Intercoastal Electronics' budgeted income statement for the first quarter of 20x1. (Ignore income taxes.) INTERCOASTAL ELECTRONICS COMPANY Budgeted Income Statement For the First Quarter of 20x1 Selling and administrative expenses: Total selling and administrative expenses 8. Prepare Intercoastal Electronics' budgeted statement of retained earnings for the first quarter of 20x1. INTERCOASTAL ELECTRONICS COMPANY Budgeted Statement of Retained Earnings For the First Quarter of 20x1 Retained earnings, 12/31/x0 Retained earnings, 3/31/x1 9. Prepare Intercoastal Electronics' budgeted balance sheet as of March 31, 20x1. (Hint: On March 31, 20x1, Bond Interest Payable is $2,500 and Property Taxes Payable is $900.) INTERCOASTAL ELECTRONICS COMPANY Budgeted Balance Sheet March 31, 20x1 Total assets $ Total liabilities and stockholders' equity $ 0