Cash Accounts receivable Marketable securities Inventory...... Buildings and equipment (net of accumulated depreciation) Total assets Accounts payable Bond interest payable. Property taxes payable Bonds payable (10%; due in 20x6). Common stock Retained earnings Total liabilities and stockholders' equity $ 35,000 270,000 15,000 154,000 626,000 $1,100,000 $ 176,400 12,500 3,600 300,000 500,000 107,500 $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. Intercoastal's 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. Intercoastal's cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month's 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 month's projected cost of goods sold. 3. Hanson has estimated that Intercoastal's other monthly expenses will be as follows: Sales salaries Advertising and promotion Administrative salaries. Depreciation...... Interest on bonds Property taxes $21,000 16,000 21,000 25,000 2,500 900 In addition, sales commissions run at the rate of 1 percent of sales. 4. Intercoastal's president, Davies-Lowry, has indicated that the firm should invest $125,000 in an auto- mated inventory-handling system to control the movement of inventory in the firm's warehouse just after the new year begins. These equipment purchases will be financed primarily from the firm's 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. 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. Intercoastal's 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- coastal's 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 Company's master budget for the first quarter of 20x1 by completing the following schedules and statements. 1. Sales budget: Total sales Cash sales Sales on account. 2. Cash receipts budget: 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 20x1 January February March 1st Quarter 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 month's purchases (schedule 3). *60% of the prior month's 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: Cash receipts (from schedule 2) Less: Cash disbursements (from schedule 4) Change in cash balance during period due to operations. 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 20x1 January February March 1st Quarter 6. Analysis of short-term financing needs: 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 69 $ $ 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.)