\"We really need to get this new materlal-handling equipment in operation just a

Question

"We really need to get this new materlal-handling equipment in operation just after the new year begins. I hope we can finance It largely with cash and marketable securttles, but if necessary we can get a short-term loan down at MetroBank." This statement by Beth Davles-Lowry, president of Global Electronics Company concluded a meeting she had called with the firm's top management. Global Iis a small, rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen appliances and power tools. Marcla Wilcox, Global Electronics' general manager of marketing, has recently completed a sales forecast. She belleves 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. Global's projected balance sheet as of December 31, 20xo is as follows Cash Accounts recelvable Marketable securities Inventory Bulldings and equipment (net of accumulated depreciation) $ 70,000 540,000 30,000 308,000 1,252,000 Total assets $2,200,000 Accounts payable Bond Interest payable Property taxes payable Bonds payable (10%, due in 20x6) Common stock Retalned earnings 352,800 25,000 7.200 600,000 1,000,000 215,000 $2.200,000 Total labilities 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

Explanation / Answer

Summary Cash Budget 20X1 January February March 1st Quarter Cash Receipts (from schedule 2) $826,000 $908,600 $999,460 $2,734,060 Less: Cash disbursements (from schedule 4) $766,320 $809,152 $851,680 $2,427,152 Change in cash balance during period due to operations $59,680 $99,448 $147,780 $306,908 Sale of marketable securities $30,000 $30,000 Proceeds from bank loan $170,000 $170,000 Purchase of equipment ($250,000) ($250,000) Repayment of bank loan ($170,000) ($170,000) Interest on bank loan ($4,250) ($4,250) Payment of dividends ($100,000) ($100,000) Change in cash balance during first quarter ($17,342) Cash balance 1/1/X1 $70,000 Cash balance 3/31/X1 $52,658 Calculation of required short term borrowing Projected cash balance as of December 31, 20X0 $70,000 Less: Minimum cash balance ($50,000) Cash available for equipment purchase $30,000 Projected proceedsfrom sale of marketable securities $50,000 Cash available $80,000 Less: Cost of investment in equipment ($250,000) Required short term borrowings ($170,000) Budgeted Income statement For the first Quarter of 20X1 Sales $2,912,800 Cost of goods sold $2,038,960 Gross Profit $873,840 Selling and Administrative expenses Sales salaries $126,000 Advertising and promotion $96,000 Administrative salaries $126,000 Depreciation $150,000 Interest on bonds $15,000 Property taxes $5,400 Sales commission $29,128 Interest on bank loan $4,250 Total selling and administrative expenses $551,778 Net Profit $322,062 Budgeted Statement of Retained Earnings For the first Quarter of 20X1 Retained earnings, 12/31/X0 $215,000 Add: Net income $322,062 Less: Dividend ($100,000) Retained earnings, 3/31/X1 $437,062 Budgeted Balance Sheet March 31, 20X1 Cash $52,658 Accounts receivable $718,740 Inventory $372,680 Building and equipment (net of accumulated depreciation) $1,352,000 Total assets $2,496,078 Accounts payable $447,216 Bond interest payable $10,000 Property taxes payable $1,800 Bonds payable $600,000 Common stock $1,000,000 Retained Earnings $437,062 Total liabilities and stockholder's equity $2,496,078

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