PLEASE RESOLVE: 1)SALES BUDGET 2)CASH RECEIPT BUDGET 3)PURCHASES BUDGET 4)CASH D

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PLEASE RESOLVE: 1)SALES BUDGET 2)CASH RECEIPT BUDGET 3)PURCHASES BUDGET 4)CASH DISBURSEMENTS BUDGET "We really need to get this new material-handling equipment in operation 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 Davis-lowry, president of Global Electronics Company, concluded a meeting she had called with the firm's top management. Global 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, Global Electronics' 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. Global's projected balance sheet as of December 21, 20xo is as follows: Cash 70,000 Accounts receivable 540,000 Marketable securities 30,000 Inventory 308,000 Building an equipment (net of accumulated appreciation) 1,252,000 Total assets 2,200,000 Accounts payable 352,800 Bond interest payable 25,000 Property taxes payable 7,200 Bonds payable (10%; due in 20x6) 600,000 Common stock 1,000,000 Retained earnings 215,000 2,200,000 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 20x0 are $800,000. Credit sales typically are 75 percent of total sales. Global's credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. 2) Global Electronics' cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 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 Global's monthly expenses will be as follows: Salaries 42,000 Advertising and promotion 32,000 Administrative salaries 42,000 Depreciation 50,000 Interest on bonds 5,000 Property taxes 1,800 In addition, sales commissions run at a rate of 1 percent of sales. 4) Global Electronics' president, Davies-Lowrdy, has indicated that the firm should invest $250,000 in an automated inventory-handling system to control the mvement 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 the company needs to keep a minimum cas balance of $50,000. 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) Global Electroncs' board of directors has indicated an intention to decleare and pay dividends of $100,000 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 Global Electronics' 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. Required: Prepare Global Electronics Company's master budget for the first quarter of 20x1 by completing the follwing schedules and statements: 1) SALES BUDGET: 20x0 20x1 December January February March 1st Quarte Total sales Cash sales Sales on account 2) CASH RECEIPTS BUDGET 20x1 January February March 1st Quarte Cash sales Cash collections from credit sales made during current month Cash collections from credit sales made during preceding month Total cash receipts 3) PURCHASES BUDGET 20x0 20x1 December January February March 1st Quarte Budgeted cost of goods sold Add: Desired endin inventory Total goods needed Less: Expected beginning inventory Purchases 4) CASH DISBURSEMENTS BUDGET 20x1 January February March 1st Quarte Inventory purchases: Cash payment for purchases during the current month (40% of the current month's purchases on schedule 3) Cash payment for purchases during the preceding month (60% of the prior month's purchases on schedule 3) Total cash payment for inventory purchases Other expenses: Sales salaries Advertising and promotion Administrative salaries Interest on bonds (Paid every six months on January 31 and July 31) Property taxes (Paid every six months on February 28 and August 31) Sales commissions Total cash payments for other expenses Total cash disbursements PLEASE RESOLVE: 1)SALES BUDGET 2)CASH RECEIPT BUDGET 3)PURCHASES BUDGET 4)CASH DISBURSEMENTS BUDGET "We really need to get this new material-handling equipment in operation 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 Davis-lowry, president of Global Electronics Company, concluded a meeting she had called with the firm's top management. Global 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, Global Electronics' 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. Global's projected balance sheet as of December 21, 20xo is as follows: Cash 70,000 Accounts receivable 540,000 Marketable securities 30,000 Inventory 308,000 Building an equipment (net of accumulated appreciation) 1,252,000 Total assets 2,200,000 Accounts payable 352,800 Bond interest payable 25,000 Property taxes payable 7,200 Bonds payable (10%; due in 20x6) 600,000 Common stock 1,000,000 Retained earnings 215,000 2,200,000 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 20x0 are $800,000. Credit sales typically are 75 percent of total sales. Global's credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. 2) Global Electronics' cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 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 Global's monthly expenses will be as follows: Salaries 42,000 Advertising and promotion 32,000 Administrative salaries 42,000 Depreciation 50,000 Interest on bonds 5,000 Property taxes 1,800 In addition, sales commissions run at a rate of 1 percent of sales. 4) Global Electronics' president, Davies-Lowrdy, has indicated that the firm should invest $250,000 in an automated inventory-handling system to control the mvement 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 the company needs to keep a minimum cas balance of $50,000. 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) Global Electroncs' board of directors has indicated an intention to decleare and pay dividends of $100,000 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 Global Electronics' 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. Required: Prepare Global Electronics Company's master budget for the first quarter of 20x1 by completing the follwing schedules and statements: 1) SALES BUDGET: 20x0 20x1 December January February March 1st Quarte Total sales Cash sales Sales on account 2) CASH RECEIPTS BUDGET 20x1 January February March 1st Quarte Cash sales Cash collections from credit sales made during current month Cash collections from credit sales made during preceding month Total cash receipts 3) PURCHASES BUDGET 20x0 20x1 December January February March 1st Quarte Budgeted cost of goods sold Add: Desired endin inventory Total goods needed Less: Expected beginning inventory Purchases 4) CASH DISBURSEMENTS BUDGET 20x1 January February March 1st Quarte Inventory purchases: Cash payment for purchases during the current month (40% of the current month's purchases on schedule 3) Cash payment for purchases during the preceding month (60% of the prior month's purchases on schedule 3) Total cash payment for inventory purchases Other expenses: Sales salaries Advertising and promotion Administrative salaries Interest on bonds (Paid every six months on January 31 and July 31) Property taxes (Paid every six months on February 28 and August 31) Sales commissions Total cash payments for other expenses Total cash disbursements

Explanation / Answer

Sales Budget 20x0 20x1 December January February March Total Sales 800000 880000 968000 1064800 Cash Sales 200000 220000 242000 266200 Sales on Account 600000 660000 726000 798600 Cash Receipt Budget 20x1 January February March Cash Sales 220000 242000 266200 Collections from Credit sales made during current month 66000 72600 79860 Collections from Credit sales made during preceeding month 540000 594000 653400 Total cash receipts 826000 908600 999460 Purchase Budget 20x1 January February March Budgeted cost of goods sold 616000 677600 745360 Add: Desired Ending Inventory 338800 372680 409948 Total goods needed 954800 1050280 1155308 Less: Expected Beginning Inventory 308000 338800 372680 Purchases 646800 711480 782628 Cash Disbursement Budget 20x1 January February March Inventory Purchases 646800 711480 782628 Cash Payment for purchases during current month (40% of current month's purchases) 258720 284592 313051.2 Cash payment for purchases during preceding month (60% of prior month's purchases) 352800 388080 426888 Total cash Payment for Inventory purchases 611520 672672 739939 Other expense Sales Salaries 42000 42000 42000 Advertising and Promotion 32000 32000 32000 Administrative salaries 42000 42000 42000 Interest on bonds (paid every six months on Jan 31 and July 31) 30000 Property taxes (paid every six months on Feb 28 and Aug. 31) 10800 Sales Commissions 8800 9680 10648 Total cash Payment for other expenses 154800 136480 126648 Total cash disbursements 766320 809152 866587

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