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 $ 35,000 Accounts receivable 270,000 Marketable securities 15,000 Inventory 154,000 Buildings and equipment (net of accumulated depreciation) 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 in 20x6) 300,000 Common stock 500,000 Retained earnings 107,500 Total liabilities and stockholders equity $1,100,000 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 $400,000 Credit sales typically are 75 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 $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 percent of sales 4 Intercoastals 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 firms ware house 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 $25,000 If necessary, the remainder of the equipment pur chases 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 Inter coastals 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 Required 1 Describe the role of budgeting in a firms strategic planning 2 For each of the financial objectives established by the board of directors and the president of Healthful Foods Inc , determine whether John Winslows budget attains these objectives Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer Objective Attained Not AttainedCalculations 3 Explain why the adjustments contemplated by John Winslow are unethical, citing specific standards of ethical conduct for management accountants (CMA, adapted) 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 $ 35,000 Accounts receivable 270,000 Marketable securities 15,000 Inventory 154,000 Buildings and equipment (net of accumulated depreciation) 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 in 20x6) 300,000 Common stock 500,000 Retained earnings 107,500 Total liabilities and stockholders equity $1,100,000 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 $400,000 Credit sales typically are 75 percent of total sales Intercoastals credit experience indicates that 10 percent of the credit sales are collected dur ing 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 $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 percent of sales Prepare Intercoastal Electronics Companys master budget for the first quarter of 20x1 by completing the following schedules and statements 1 Sales budget 20x0 20x1 December January February March 1st Quarter Total sales Cash sales Sales on account 2 Cash receipts budget 20x1 January February March 1st Quarter Cash sales Cash collections from credit sales made during current month Cash collections from credit sales made during preceding month Total cash receipts 3 Purchases budget 20x0 20x1 December January February March 1st Quarter Budgeted cost of goods sold Add Desired ending inventory Total goods needed Less Expected beginning inventory Purchases 4 Cash disbursements budget 20x1 January February March 1st 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 40 of the current months purchases (schedule 3) 60 of the prior months purchases (schedule 3) Bond interest is paid every six months, on January 31 and July 31 Property taxes also are paid every six months, on February 28 and August 31 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) Summary cash budget 6 Analysis of short term financing needs 7 Prepare Intercoastal Electronics budgeted income statement for the first quarter of 20x1 (Ignore income taxes ) 8 Prepare Intercoastal Electronics budgeted statement of retained earnings for the first quarter of 20x1 9 Prepare Intercoastal Electronics budgeted balance sheet as of March 31, 20x1 ( Hint On March 31, 20x1, Bond Interest Payable is $5,000 and Property Taxes Payable is $900 )

Question

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                                                                                                                                                    $ 35,000 Accounts receivable                                                                                                                              270,000 Marketable securities                                                                                                                            15,000 Inventory                                                                                                                                              154,000 Buildings and equipment (net of accumulated depreciation)                                                                     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 in 20x6)                                                                                                         300,000 Common stock                                                                                                                                     500,000 Retained earnings                                                                                                                                 107,500 Total liabilities and stockholders equity                                                                                                 $1,100,000 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 $400,000  Credit sales typically are 75 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                                                                                                                                                $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 percent of sales  4   Intercoastals 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 firms ware house 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 $25,000  If necessary, the remainder of the equipment pur chases 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 Inter coastals 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  Required  1   Describe the role of budgeting in a firms strategic planning  2   For each of the financial objectives established by the board of directors and the president of Healthful Foods Inc , determine whether John Winslows budget attains these objectives  Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer  Objective Attained Not AttainedCalculations 3   Explain why the adjustments contemplated by John Winslow are unethical, citing specific standards of ethical conduct for management accountants  (CMA, adapted) 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                                                                                                                                                    $ 35,000 Accounts receivable                                                                                                                              270,000 Marketable securities                                                                                                                            15,000 Inventory                                                                                                                                              154,000 Buildings and equipment (net of accumulated depreciation)                                                                     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 in 20x6)                                                                                                         300,000 Common stock                                                                                                                                     500,000 Retained earnings                                                                                                                                 107,500 Total liabilities and stockholders equity                                                                                                 $1,100,000 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 $400,000  Credit sales typically are 75 percent of total sales  Intercoastals credit experience indicates that 10 percent of the credit sales are collected dur ing 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                                                                                                                                                $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 percent of sales  Prepare Intercoastal Electronics Companys master budget for the first quarter of 20x1 by completing the following schedules and statements  1   Sales budget  20x0 20x1 December January February March 1st Quarter Total sales                                                   Cash sales                                                   Sales on account                                         2   Cash receipts budget  20x1 January February March 1st Quarter Cash sales                                                                  Cash collections from credit sales made during current month                                     Cash collections from credit sales made during preceding month                                 Total cash receipts                                                      3   Purchases budget  20x0 20x1 December January February March 1st Quarter Budgeted cost of goods sold                                       Add  Desired ending inventory                              Total goods needed                              Less  Expected beginning inventory                          Purchases                                           4   Cash disbursements budget  20x1 January February March 1st 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                                             40  of the current months purchases (schedule 3) 60  of the prior months purchases (schedule 3) Bond interest is paid every six months, on January 31 and July 31  Property taxes also are paid every six months, on February 28 and August 31  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)  Summary cash budget  6  Analysis of short term financing needs  7  Prepare Intercoastal Electronics budgeted income statement for the first quarter of 20x1  (Ignore income taxes ) 8   Prepare Intercoastal Electronics budgeted statement of retained earnings for the first quarter of 20x1  9   Prepare Intercoastal Electronics budgeted balance sheet as of March 31, 20x1  ( Hint  On March 31, 20x1, Bond Interest Payable is $5,000 and Property Taxes Payable is $900 )

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