We really need to get this new material-handling equipment inoperation just after the new year begins. I hope we can finance itlargely with cash and marketable securities, but if necessary wecan get a short-term loan down at MetroBank.” This statement byBeth 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 consumerelectronic products. The firm’s main product lines are smallkitchen appliances and power tools. Marcia Wilcox, Intercoastal’sGeneral Manager of Marketing, has recently completed a salesforecast. She believes the company’s sales during the first quarterof 20x1 will increase by 10 percent each month over the previousmonth’s sales. Then Wilcox expects sales to remain constant forseveral months. Intercoastal’s projected balance sheet as ofDecember 31, 20x0, is as follows:

Cash	$	50,000
Accounts receivable		224,000
Marketable securities		20,000
Inventory		154,000
Buildings and equipment (net of accumulated depreciation)		667,000
Total assets	$	1,115,000
Accounts payable	$	205,800
Bond interest payable		9,000
Property taxes payable		2,400
Bonds payable (6%; due in 20x6)		360,000
Common stock		450,000
Retained earnings		87,800
Total liabilities and stockholders’ equity	$	1,115,000

Jack Hanson, the assistant controller, is now preparing amonthly budget for the first quarter of 20x1. In the process, thefollowing information has been accumulated:

1. Projected sales for December of 20x0 are $400,000. Credit salestypically are 70 percent of total sales. Intercoastal’s creditexperience indicates that 20 percent of the credit sales arecollected during the month of sale, and the remainder are collectedduring the following month.
2. Intercoastal’s cost of goods sold generally runs at 70 percentof sales. Inventory is purchased on account, and 30 percent of eachmonth’s purchases are paid during the month of purchase. Theremainder is paid during the following month. In order to haveadequate stocks of inventory on hand, the firm attempts to haveinventory at the end of each month equal to half of the nextmonth’s projected cost of goods sold.
3. Hanson has estimated that Intercoastal’s other monthly expenseswill be as follows:

Sales salaries	$	28,000
Advertising and promotion		16,000
Administrative salaries		28,000
Depreciation		20,000
Interest on bonds		1,800
Property taxes		600

In addition, sales commissions run atthe rate of 2 percent of sales.

4. Intercoastal’s president, Davies-Lowry, has indicated that thefirm should invest $120,000 in an automated inventory-handlingsystem to control the movement of inventory in the firm’s warehousejust after the new year begins. These equipment purchases will befinanced primarily from the firm’s cash and marketable securities.However, Davies-Lowry believes that Intercoastal needs to keep aminimum cash balance of $20,000. If necessary, the remainder of theequipment purchases will be financed using short-term credit from alocal bank. The minimum period for such a loan is three months.Hanson believes short-term interest rates will be 10 percent peryear at the time of the equipment purchases. If a loan isnecessary, Davies-Lowry has decided it should be paid off by theend of the first quarter if possible.
5. Intercoastal’s board of directors has indicated an intention todeclare and pay dividends of $30,000 on the last day of eachquarter.
6. The interest on any short-term borrowing will be paid when theloan is repaid. Interest on Intercoastal’s bonds is paidsemiannually on January 31 and July 31 for the preceding six-monthperiod.
7. Property taxes are paid semiannually on February 28 and August31 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. Thendo 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 forthe first quarter of 20x1. (Ignore income taxes.)

8. Prepare Intercoastal Electronics’ budgeted statement ofretained earnings for the first quarter of 20x1.

9. Prepare Intercoastal Electronics’ budgeted balance sheet as ofMarch 31, 20x1. (Hint: On March 31, 20x1, Bond InterestPayable is $3,600 and Property Taxes Payable is $600.)