_{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		324,000
Marketable securities		15,000
Inventory		211,200
Buildings and equipment (net of accumulated depreciation)		634,000
Total assets	$	1,239,200
Accounts payable	$	241,920
Bond interest payable		6,250
Property taxes payable		6,000
Bonds payable (5%; due in 20x6)		300,000
Common stock		500,000
Retained earnings		185,030
Total liabilities and stockholders equity	$	1,239,200

^{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. ^{Hanson has estimated that Intercoastals other monthly expenses will be as follows:}

   Sales salaries	$	12,000
   Advertising and promotion		10,000
   Administrative salaries		12,000
   Depreciation		25,000
   Interest on bonds		1,250
   Property taxes		1,500

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

2. ^{Intercoastals president, Davies-Lowry, has indicated that the firm should invest $120,000 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 $30,000. 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.}

3. ^{Intercoastals board of directors has indicated an intention to declare and pay dividends of $25,000 on the last day of each quarter.}

4. ^{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.}

5. ^{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.}

^{Required 1- Cash disbursements budget:}

	20x1
	January	February	March	First Quarter
Inventory purchases:
Cash payments for purchases during the current month	$177,408	$195,149	?	?
Cash payments for purchases during the preceding month	241,920	266,112	292,723	800,755
Total cash payments for inventory purchases	$419,328	$461,261	$292,723	$800,755
Other expenses:
Sales salaries	$12,000	$12,000	$12,000	$36,000
Advertising and promotion	10,000	10,000	10,000	30,000
Administrative salaries	12,000	12,000	12,000	36,000
Interest on bonds	?	?	?	?
Property taxes	?	?	?	?
Sales commissions	10,560	11,616	12,778	34,954
Total cash payments for other expenses	$44,560	$45,616	$46,778	$136,954
Total cash disbursements

Required 2-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	$0	$0	$0	$0
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

3Required -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	$
Less: Cost of investment in equipment
Required short-term borrowing	$(

Required 4-Prepare Intercoastal Electronics budgeted income statement for the first quarter of 20x1. (Ignore income taxes.)

Required 5-Prepare Intercoastal Electronics budgeted statement of retained earnings for the first quarter of 20x1

Required 6-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 $1,500.)