Wimerick Corporation prepares annual budgets by quarters. The companys post-closing trial balance as of December 31, 2015, is as follows:

All of the capital stock of the company was recently acquired by Juan Jackson. After the purchase, Jackson loaned substantial sums of money to the corporation, which still owes him $480,000 on a 5% note. There are no accrued federal income taxes payable, but future earnings will be subject to income taxation.

Jackson is anxious to withdraw $120,000 from the corporation (as a payment on the note payable to him) but will not do so if it reduces the corporations cash balance below $120,000. Thus, he is quite interested in the budgets for the quarter ending March 31, 2016.

Additional Data:

1. Sales for the coming quarter ending March 31, 2016, are forecasted at $1,200,000; for the following quarter they are forecasted at $1,500,000. All sales are priced to yield a gross margin of 40%. Inventory is to be maintained on hand at the end of any quarter in an amount equal to 20% of the goods to be sold in the next quarter. All sales are on account, and 95% of the December 31, 2015, receivables plus 70% of the current quarters sales will be collected during the quarter ending March 31, 2016.

2. Selling expenses are budgeted at $48,000 plus 6% of sales; $24,000 will be incurred on account, $66,000 accrued, $27,000 from expiration of prepaid rent and prepaid insurance, and $3,000 from allocated depreciation.

3. Purchasing expenses are budgeted at $34,800 plus 5% of purchases for the quarter; $9,000 will be incurred on account, $48,000 accrued, $13,800 from expired prepaid expenses, and $1,200 from allocated depreciation.

4. Administrative expenses are budgeted at $42,000 plus 2% of sales; $3,000 will be incurred on account, $36,000 accrued, $13,200 from expired prepayments, and $1,800 from allocated depreciation. Uncollectible accounts are estimated at 1% of sales.

5. Interest accrues at 5% annually on the notes payable and is credited to Accrued Liabilities Payable.

6. All of the beginning balances in Accounts Payable and Accrued Liabilities Payable, plus 80% of the current credits to Accounts Payable, and all but $30,000 of the current accrued liabilities will be paid during the quarter. An $18,000 insurance premium is to be paid prior to March 31, and a full years rent of $144,000 is due on January 2.

7. Federal income taxes are budgeted at 40% of the income before federal income taxes. The taxes should be accrued, and no payments are due in the first quarter.

Questions:

a. Prepare a planned operating budget for the quarter ending March 31, 2016, including supporting schedules for planned purchases and operating expenses.

b. Prepare a financial budget for March 31, 2016. Supporting schedules should be included that (1) analyze accounts credited for purchases and operating expenses, (2) show planned accounts receivable collections and balance, and (3) show planned cash flows and cash balance.

c. Will Jackson be able to collect the $120,000 on his note?