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 Polosky, 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 Polosky expects sales to remain constant for several months. Intercoastals projected balance sheet as of December 31, 20x0, is as follows:

Cash $ 50,000 Accounts receivable 324,000 Marketable securities 15,000 Inventory 184,800 Buildings and equipment (net of accumulated depreciation) 599,000 Total assets $ 1,172,800 Accounts payable $ 211,680 Bond interest payable 6,875 Property taxes payable 6,000 Bonds payable (5%; due in 20x6 330,000 Common stock 500,000 Retained earnings 118,245 Total liabilities and stockholders equity $ 1,172,800 Joaquin Rafael, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

Projected sales for December of 20x0 are $480,000. 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. 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. Rafael has estimated that Intercoastals other monthly expenses will be as follows: Sales salaries $ 30,000 Advertising and promotion 20,000 Administrative salaries 30,000 Depreciation 25,000 Interest on bonds 1,375 Property taxes 1,500 In addition, sales commissions run at the rate of 2 percent of sales.

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 $25,000. 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. Rafael 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. Intercoastals board of directors has indicated an intention to declare and pay dividends of $50,000 on the last day of each quarter. 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. Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period. Required: Prepare Intercoastal Electronics Companys master budget for the first quarter of 20x1 by completing the following schedules and statements.

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