Question

“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:

Cash	$	35,000
Accounts receivable		252,000
Marketable securities		10,000
Inventory		231,000
Buildings and equipment (net of accumulated depreciation)		670,000
Total assets	$	1,198,000
Accounts payable	$	220,500
Bond interest payable		22,500
Property taxes payable		4,800
Bonds payable (15%; due in 20x6)		360,000
Common stock		400,000
Retained earnings		190,200
Total liabilities and stockholders’ equity	$	1,198,000

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 $600,000. Credit sales typically are 60 percent of total sales. Intercoastal’s credit experience indicates that 30 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 50 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	$	45,000
Advertising and promotion		25,000
Administrative salaries		45,000
Depreciation		15,000
Interest on bonds		4,500
Property taxes		1,200

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

4. Intercoastal’s president, Davies-Lowry, has indicated that the firm should invest $115,000 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 each quarter.
6. The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Intercoastal’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.

PLEASE PREPARE THE FOLLOWING:

1) Sales budget:

2) Cash receipts budget:

3) Purchases Budget

4) Cash disbursements budget:

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).

6) Calculation of required short-term borrowing.

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 $9,000 and Property Taxes Payable is $1,200.)

PLEASE HELP! THANK YOU!!

Answer 1

Sales Budget	January	February	March	Total Qtr
Credit Sales	396000	435600	479160	13,10,760.00
Cash Sales	264000	290400	319440	8,73,840.00
Total Budgeted Sales	660000	726000	798600	21,84,600.00
	.
Schedule of cash receipts	January	February	March	Total Qtr
Cash Sales	2,64,000.00	2,90,400.00	3,19,440.00	8,73,840.00
Plus: Accounts Receivable Current Month	1,18,800.00	1,30,680.00	1,43,748.00	3,93,228.00
Accounts Receivable Previous Month	2,52,000.00	2,77,200.00	3,04,920.00	8,34,120.00
Total Collections	6,34,800.00	6,98,280.00	7,68,108.00	21,01,188.00
Merchandise Purchase Budget	January	February	March	Total Qtr
Cost of Goods Sold	462000	508200	559020	1529220
Add: Ending Inventory	254100	279510	307461	307461
Required Inventory	716100	787710	866481	1836681
Less: Opening Inventory	231000	254100	279510	231000
Purchase of Merchandise	485100	533610	586971	1605681
Cash Disbursement Budget	January	February	March	Total Qtr
Payment of current month's A/P (50%)	2,42,550.00	2,66,805.00	2,93,485.50	8,02,840.50
Payment for prior month's A/P(50%)	2,20,500.00	2,42,550.00	2,66,805.00	7,29,855.00
Total budgeted payments	4,63,050.00	5,09,355.00	5,60,290.50	15,32,695.50
Cash Budget	January	February	March	Total Qtr
Beginning Balance	35,000.00	25,000.00	77,205.00	35,000.00
Add: Receipts
Cash Collections	6,34,800.00	6,98,280.00	7,68,108.00	21,01,188.00
Marketable Securities	10,000.00			10,000.00
Total Cash Available	6,79,800.00	7,23,280.00	8,45,313.00	21,46,188.00
Less: Disbursements
Purchases	4,63,050.00	5,09,355.00	5,60,290.50	15,32,695.50
Sales Salaries	45,000.00	45,000.00	45,000.00	1,35,000.00
Advertising and Promotion	25,000.00	25,000.00	25,000.00	75,000.00
Administrative Salaries	45,000.00	45,000.00	45,000.00	1,35,000.00
Sales Commissions	13,200.00	14,520.00	15,972.00	43,692.00
Interest on Bonds	27,000.00	-	-	27,000.00
Property Taxes	-	7,200.00	-	7,200.00
Dividends	-	-	50,000.00	50,000.00
Equipment Purchase	1,15,000.00			1,15,000.00
Total Disbursements	7,33,250.00	6,46,075.00	7,41,262.50	21,20,587.50
Excess /(Deficiency) of cash	-53,450.00	77,205.00	1,04,050.50	25,600.50
Financing:
Borrowings	78,450.00			78,450.00
Repayments			-76,450.00	-76,450.00
Interest			-1,961.25	-1,961.25
Total Financing	78,450.00	-	-78,411.25	38.75
Cash Balance Ending	25,000.00	77,205.00	25,639.25	25,639.25

Calculation of Required short term financing
Total Cash Available	6,79,800.00
Total Cash Disbursements	6,18,250.00
Cash Available for Equipment Purchase	61,550.00
Cost of Equipment	1,15,000.00
Minimum Balance to be maintained	25,000.00
Total Financing Required	78,450.00

Budgeted Income Statement
Sales Revenue	21,84,600.00
Less: Cost of goods sold	15,29,220.00
Gross profit	6,55,380.00
Less: Expenses
Sales Salaries	1,35,000.00
Advertising and Promotion	75,000.00
Administrative Salaries	1,35,000.00
Sales Commissions	43,692.00
Interest on Bonds	13,500.00
Property Taxes	3,600.00
Depreciation	45,000.00
Interest on short term financing	1961.25
Total Expenses	4,52,753.25
Net Income	2,02,626.75

Statement of Retained Earnings
Opening Balance	190,200.00
Add: Net Income	2,02,626.75
Less: Dividends Paid	50,000.00
Retained Earnings Ending balance	3,42,826.75

Balance Sheet
Cash	25,639.25
Accounts receivable	3,35,412.00
Inventory	3,07,461.00
Buildings and equipment (net of accumulated depreciation)	7,40,000.00
Total assets	14,08,512.25
Accounts payable	2,93,485.50
Bond interest payable	9,000.00
Short term Credit (78450-76450)	2,000.00
Property taxes payable	1,200.00
Bonds payable (15%; due in 20x6)	3,60,000.00
Common stock	4,00,000.00
Retained earnings	3,42,826.75
Total liabilities and stockholders’ equity	14,08,512.25