Question

Required intormation The following information applies to the questions displayed below. "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 firm's top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastal's General Manager of Marketing, has recently completed a sales forecast. She believes the company's sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month's sales. Then Wilcox expects sales to remain constant for several months. Intercoastal's projected balance sheet as of December 31, 20x0, is as follows $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 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 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 2. Intercoastal's cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 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. 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 16,00e 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 automated 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 6. The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Intercoastal's bonds is paid 7. Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period. each quarter. semiannually on January 31 and July 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: 20x0 20x1 December January February March First Quarter Total sales Cash sales Sales on account 2. Cash receipts budget: 20x1 January February March First Quarter 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 First Quarter Budgeted cost of goods sold Add: Desired ending inventory lotal goods needed Less: Expected beginning inventory Purchases

Answer 1

Beth Davies-Lowry, president of Intercoastal Electronics Company, aims to finance new material-handling equipment with cash or marketable securities.

How to explain this

They consider a short-term loan from MetroBank if necessary. Marcia Wilcox, the General Manager of Marketing, forecasts a 10% monthly sales increase in the first quarter of 20x1, followed by constant sales.

Intercoastal's projected balance sheet for December 31, 20x0, includes cash, receivables, securities, inventory, equipment, payables, bonds, stock, and retained earnings.

Assistant Controller Jack Hanson prepares a quarterly budget for 20x1. December 20x0 sales project at $400,000, 75% being credit sales. Cost of goods sold is typically 70% of sales.

Inventory is purchased on credit, with payment terms detailed, aiming to maintain inventory at half of the next month's projected cost of goods sold.