Problem 9.

42(7th Indian Edition Revised)

Intercoastal Electronics Company

Cash 35000
Accounts receivable 270000
Marketable Securities 15000
Inventory 154000
Buildings and Equipment 626000
1100000

Accounts Paybale 176400

Bond interesrt paybale 12500
Proprty taxes paybale 3600
Bonds payable 300000
Common stock 500000
Retained earnings 107500
Total Liabilities and Stockholder's equity 1100000
Intercoastal Electronics Company
Assumptions:
Growth rate in Sales 10%
Cash sales 25%
Cash colletions from credit Sales-First month 10%
Cash colletions from credit Sales-Second month 90%
COGS as% of Sales 70%
Closing balance of Inventory 50%
Cash payments for purchases 40%
Cash payments for purchases-following month 60%
Sales commision 1%
Interest rate on Bonds 10%
Interest rate on Bank loans 10%

Minimum cash balance 25000

Dividends payable 50000
Sales salaries 21000
Advertising and promotion 16000
Administrative salaries 21000
Depreciation 25000
Interest on Bonds per month 2500
Proposed Cap Expenditure-Equipment 125000
Property taxes per month 900

1. Sales budget:
20x0 20x1
December January February March 1st Quarter

Total sales 400000 440000 484000 532400 1456400

Cash sales 100000 110000 121000 133100 364100
 Sales on account 300000 330000 363000 399300 1092300

2. Cash receipts budget:

20x1
January February March 1st Quarter

Cash sales 110000 121000 133100

Cash collections from credit sales made during current month 33000 36300 39930
Cash collections from credit sales-previous month 270000 297000 326700
Total cash receipts 413000 454300 499730 1367030

3. Purchases budget:
20x0 20x1
December January February March 1st Quarter

Budgeted cost of goods sold 280000 308000 338800 372680 1019480

Add: Desired ending inventory 154000 169400 186340 186340
Total goods needed ….. 434000 477400 525140 559020
Less: Expected beginning inventory 140000 154000 169400 186340
Purchases 294000 323400 355740 372680 1051820

4. Cash disbursement budget:

20x1
January February March 1st Quarter

Inventory purchases:
Cash payments for purchases during current month 129360 142296 149072
Cash payments for purchases during preceding monthg 176400 194040 213444
Total cash payments for inventory purchases 305760 336336 362516 1004612
 Other expenses:
Sales salaries 21000 21000 21000 63000
Advertising and promotion 16000 16000 16000 48000
Administrative salaries 21000 21000 21000 63000
Interest on bonds‡ 15000 0 0 15000
Property taxes‡ 0 5400 0 5400
Sales commissions 4400 4840 5324 14564
Total cash payments for other expenses 77400 68240 63324
Total cash disbursements 383160 404576 425840

5. Complete the first three lines of the summary cash budget. Then do the analysis of short-
term financing needs in requiredment (6). Then finish requirement (5).

Summary cash buddget:

20x1
January February March 1st Quarter

Cash receipts (from schedule 2) 413000 454300 499730 1367030

Less: Cash disbursements 383160 404576 425840 1213576
Change in cash balance during the period due to operations 29840 49724 73890 153454
Sale of marketable securities (1/2/×1) …… 15000 15000
Proceeds from bank loan (1/2/×1) 100000 100000
Purchase of equipment -125000 -125000
Repayment of bank loan (3/31/×1) 0 0 -100000 -100000
Interest on bank loan -2500 -2500
 Payment of dividends -50000 -50000
Change in cash balance during first quarter ….. -9046
Cash balance, 1/1/×1 35000
Cash balance, (3/31/×1) 25954

6. Analysis of short-term financing needs:

Projected cash balance as of December 31, 20x0 35000

Less: Minimum cash balance 25000
Cash available for equipment purchases 10000
Projected proceeds from sale of marketable securities 15000
Cash available 25000
Less: Cost of investment in equipment 125000
Required short-term borrowing -100000

7. Budgeted Income Statement

Intercoastal Electronics Company Budgeted Income Statement for the first quarter of 20X1
Sales Revenue 1456400
Less: Cost of Goods Sold 1019480
Gross Margin 436920
Selling and Administrative Expenses
Sales Salaries 63000
Sales Commision 14564
Advertissing and Promotion 48000
Administrative Salaries 63000
Depreciation 75000
Interest on Bonds 7500
Interest on Short-term bank loan 2500
Property taxes 2700
 276264
Net Income 160656

8. Budgeted Statement of Retained Earnings

Retained Earnings 107500
Add: Net Income 160656
Deduct: Dividends 50000
Retained Earnings 218156

9.Budgeted Balance Sheet-as on March 31, 20X1

Cash 25954
Accounts receivable 359370
Inventory 186340
Buildings and Equipment 676000
Total Assets 1247664

Accounts Paybale 223608

Bond interest paybale 5000
Proprty taxes paybale 900
Bonds payable 300000
Common stock 500000
Retained earnings 218156
Total Liabilities and Stockholder's equity 1247664