Required Information

Problem $9-44$ Comprehenslve Master Budget; Borrowing: Acquisition of Automated Materlal$-$Handling

System $($LO $9-2,9-3,9-5,9-6)$

$[$The following information applies to the questions displayed below.$]$

$"$We really need to get thls new materlal$-$handing equlpment In operation Just after the new year begins. I hope we can

finance It largely with cash and marketable securitles$,$ 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. Marcla Wilcox, Intercoastal's General Manager of

Marketing, has recently completed a sales forecast. She belleves the company's sales during the flrst quarter of $20x1$ will

Increase by $10$ percent each month over the prevlous month's sales. Then Wilcox expects sales to remain constant for

several months. Intercoastal's projected balance sheet as of December $31,20$x$0,$ is as follows:

Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of $201.$ In the process, the

following Information has been accumulated:

Projected sales for December of $200$ are $$500,000.$ Credlt sales typlcally are $70$ percent of total sales. Intercoastal's

credit experlence Indicates that $10$ percent of the credit sales are collected during the month of sale, and the remainder

are collected during the following month.

Intercoastal's cost of goods sold generally runs at $70$ percent of sales. Inventory is purchased on account, and $25$

percent of each month's purchases are pald during the month of purchase. The remainder ls pald 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.

Hanson has estlmated that Intercoastal's other monthly expenses will be as follows:

In acdition, sales commlssions run at the rate of $3$ percent of sales.

Intercoastal's president, Davles$-$Lowry, has Indicated that the firm should Invest $$105,000$ in an automated Inventory$-$

handling system to control the movement of Inventory In the firm's warehouse Just after the new year begins. These

equlpment purchases will be financed primarily from the firm's cash and marketable securitles$.$ However, Davies$-$Lowry

belleves that Intercoastal needs to keep a minimum cash balance of $$40,000.$ If necessary, the remainder of the

equlpment purchases will be financed using short$-$term credit from a local bank. The minimum perlod for such a loan is

three months. Hanson belleves short$-$term Interest rates will be $10$ percent per year at the time of the equlpment

purchases. If a loan is necessary, Davles$-$Lowry has decided it should be pald off by the end of the first quarter if

possible.

Intercoastal's board of directors has Indicated an Intention to declare and pay dividends of $$75,000$ on the last day of

each quarter.

The Interest on any short$-$term borrowing will be paid when the loan is repald. Interest on Intercoastal's bonds is pald

semlannually on January $31$ and July $31$ for the preceding slx$-$month period.

Property taxes are pald semlannually on February $28$ and August $31$ for the preceding slx$-$month period.

Requlred:

Prepare Intercoastal Electronics Company's master budget for the first quarter of $20x1$ by completing the following

schedules and statements.