“We really need to get this new material – handling equipment in operation just 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 Metro bank”. This Statement by Beth Davies –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. Maria Wilcox, Global Electronics general manager of marketing has recently completed a sales forecast. She believes the company’s sales during the first quarter of 2021 will increase by 10% each month over the previous month s’ sales. Than Wilcox expects sales to remain constant for several months. Global ‘s projected balance sheet as of Dec 31 2020 is as follow: Cash 70,000 A/c receivable 540,000 Marketable securities 30,000 Inventory 308,000 Building and equipment (net of accumulated depreciation) 1,252,000 Total assets 2,200,000 A/c payable 352,800 Bonds interest payable 25,000 Property tax payable 7,200 Bonds Payable ( 10% due in 2026 ) 600,000 Common stock 1,000,000 Retained earnings 215,000 Total liabilities and stockholders’ equity 2,200,000 Jack Hanson the assistant controller is the preparing a monthly budget for the first quarter of 2021. In the process the following information has been accumulated Projected sales for December 2020 are 800,000. Credit sales typically are 75% of total sales. Company credit experience indicates that 10% of the credit sales are collected during the month of sales and the remainder are collected during the following month. Company cost of goods sold generally runs at 70% of sales. Inventory is purchase on account and 40% of each month ‘s purchase is 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 moth’s projected cost of goods sold. Hasson has estimated that Company monthly expense will be as follow: Sales 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 commission run at the rate of 1% of sales. Company president has indicated that the firm should invest 250,000 in an automated inventory handling system to control the movement of inventory in the firm s’ warehouse just after the new year begins. These equipment purchase will be finance primarily from the firm cash and marketable securities. However, president believes that the company needs to keep minimum cash balance of 50,000. If necessary, the remainder of the equipment purchase will be financed using the short term credit from local bank. The minimum period for such a loan is three months. Hanson believes short – term interest rate will be 10% per year at the time of equipment purchase. If a loan is necessary President has decided it should be paid off by the end of the first quarter if possible. Company board of directors has indicated an intention to declare and pay dividends of 100,000 on the last day of each quarter The interest on any short – term borrowing will be paid when the loan is repaid. Interest on bonds is paid semiannually on January 31 and July 31 for the preceding six- month Property taxes are paid semiannually on February 28 and August 31 for the preceding six – month Required: Prepare Global Electronics Company ‘s master budget for the first quarter 2021 by completing the following schedules and statements. Sales budget Schedule of expected cash collection Purchase budget
“We really need to get this new material – handling equipment in operation just 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 Metro bank”. This Statement by Beth Davies –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. Maria Wilcox, Global Electronics general manager of marketing has recently completed a sales
Cash 70,000
A/c receivable 540,000
Marketable securities 30,000
Inventory 308,000
Building and equipment (net of
Total assets 2,200,000
A/c payable 352,800
Bonds interest payable 25,000
Property tax payable 7,200
Bonds Payable ( 10% due in 2026 ) 600,000
Common stock 1,000,000
Total liabilities and
Jack Hanson the assistant controller is the preparing a monthly budget for the first quarter of 2021. In the process the following information has been accumulated
- Projected sales for December 2020 are 800,000. Credit sales typically are 75% of total sales. Company credit experience indicates that 10% of the credit sales are collected during the month of sales and the remainder are collected during the following month.
- Company cost of goods sold generally runs at 70% of sales. Inventory is purchase on account and 40% of each month ‘s purchase is 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 moth’s projected cost of goods sold.
- Hasson has estimated that Company monthly expense will be as follow:
Sales 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 commission run at the rate of 1% of sales.
- Company president has indicated that the firm should invest 250,000 in an automated inventory handling system to control the movement of inventory in the firm s’ warehouse just after the new year begins. These equipment purchase will be finance primarily from the firm cash and marketable securities. However, president believes that the company needs to keep minimum cash balance of 50,000. If necessary, the remainder of the equipment purchase will be financed using the short term credit from local bank. The minimum period for such a loan is three months. Hanson believes short – term interest rate will be 10% per year at the time of equipment purchase. If a loan is necessary President has decided it should be paid off by the end of the first quarter if possible.
- Company board of directors has indicated an intention to declare and pay dividends of 100,000 on the last day of each quarter
- The interest on any short – term borrowing will be paid when the loan is repaid. Interest on bonds is paid semiannually on January 31 and July 31 for the preceding six- month
- Property taxes are paid semiannually on February 28 and August 31 for the preceding six – month
Required: Prepare Global Electronics Company ‘s
- Sales budget
- Schedule of expected cash collection
- Purchase budget
- Schedule of expected cash disbursement for inventory purchase
- Schedule of expected cash disbursement for operations expense
Cash budget
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