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. 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.

2. Intercoastals cost of goods sold generally runs at 80 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	$	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.

4. 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.

5. Intercoastals board of directors has indicated an intention to declare and pay dividends of $25,000 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.

Required:

Prepare Intercoastal Electronics Companys master budget for the first quarter of 20x1 by completing the following schedules and statements.

Sales budget 6. Calculation of required short-term borrowing. 20xl 20x1 Decembee January February March First Quarter Total ssles Projected cash belance os of December 31, 20c0 Cash sas Less Mirimum cash balance Sales on account 0 io securttes . Cash recelpts budget Cash availahie Less: Cost of investment in eguipment Required short-term borowing 20x January February March First Quarter Cash sales Cash colections from crodt salas made uring nurrent manl Cash collectons trom credt seles made curing prececing month Total cesh receipts Prepore Interconstal Electronics Companys master bucget tor the tirst quarter of 201 by completing e tollowing schedues and statements. . Purchases budget 7. Prepare Intercoastal Elactronics budgeted Incama statamant for the first quarter of 20x1. Ignore income taxas) 20x0 20x1 December January February rch Firat Querte IN TERCOAS TAL ELEC TRONICS COMPANY Budaeled cost of goods sokd Add Desired endng inventery For the First Quarter of 20x1 ol s Total goods needad 0 S 0S nd heginning imvantary Purchases 0 4. Cash disbursements budget 20x: February January March First Quarter Invantory purchases Cesh peyments for purcheses dunng the current month Cash payments for purcheses dunng tne preceding morl 0S ents for inventory purchases 0S Oeher expenses: Sales salaries Advensing and promoton Administrative sajar es Prepare Intercoastal Electronics budgeted stetement of retained eamings for the first quarter of 20x1 est on bonds .. INTERCOAS TAL ELECTRONICS COMPANY Sals ommissions ig Budgeted Jotal cash cavments t rother expenses p r the Eirrt Qunutes Total cash dishursaments Reained eanicgs, 12/3100 of the summary cash budge. Then do the analysis of short term financing needs in requirement (6). 5. Then inish tomuirement 5) owison ononitos 310v 20x: January February March First Quarter Cash receipts (from part 21 Lass: Cash disbursements (from part 4) 9. 52500 end Pronerty Texes Pavable is $1.500 ) elence sheet es of Merch 31, 20x1, Hnt On March 31, 20x1, Bond Interest Pevelble is cash balance dunng period due to oraicrs Sale of marketable securities (1/2ix1) INTERCOASTAL ELECTRONICS COMPANY Budgele Proconds from bank ioan (1/2x1) Sheet Repeyment of bank lcen (3/31x1) Interest cn hank lnen Payment of dividends Change in cash balance during first quarte- oral aseet Cash halanne, 1/x Cash balance, 3/31x1 Toal labiles and scckhoiders equtyS