Golden, Inc. is interested in purchasing some new manufacturingequipment right after the beginning of the new year. They wouldlike to finance the new equipment with cash and marketablesecurities, but if necessary they can get a short-term loan from alocal bank. You have been engaged to prepare a master budget forGolden, Inc. for the first quarter of 2016. Golden, Inc. is asmall, rapidly growing manufacturer of lighting equipment. Thecompanyâs main product line is table lamps. The marketing managerhas recently completed a sales forecast. She believes the companyâssales during the first quarter of 2016 will increase by 15 percenteach month over the previous monthâs sales. Then sales are expectedto remain constant for several months. Golden Inc.âs projectedbalance sheet as of December 31, 2015 is as follows:
Cash $ 60,000
Accounts receivable 312,000
Marketable securities 30,000
Inventory 261,625
Buildings and equipment (net of accumulated depreciation)1,298,519
Total assets $ 1,962,144
Accounts payable $ 366,844
Bond interest payable 12,500
Property taxes payable 4,800
Bonds payable (10%; due in 2020) 600,000
Common stock 750,000
Retained earnings 228,000
Total liabilities and stockholders' equity $ 1,962,144
The controller is now preparing a budget for the first quarterof 2016. In the process, the following information has beenaccumulated:
1) Projected sales for December 2015 are $650,000. Credit salesare typically 60% of total sales. Golden, Inc.âs credit experienceindicates that 20% of credit sales are collected during the monthof sale, and the remainder are collected during the followingmonth.
2) Golden, Inc.âs cost of goods sold generally runs at 70% ofsales. Inventory is purchased on account and 25% of each monthâspurchases are paid during the month of purchase. The remainder ispaid during the following month. In order to have adequate stocksof inventory on hand, the company attempts to have inventory onhand at the end of each month equal to half of the next monthâsprojected cost of goods sold.
3) The controller has estimated that Golden Inc.âs other monthlyexpenses will be as follows:
Sales salaries $ 20,000
Advertising and promotion 25,000
Administrative salaries 35,000
Depreciation 15,000
Interest on bonds 2,500
Property taxes 1,200
In addition, sales commissions run at the rate of 3 percent ofsales and are paid in the same month as the sale.
4) The company president has indicated that the company shouldinvest $275,000 in state of the art manufacturing equipment justafter the new year begins. This equipment purchase will be financedprimarily from the companyâs cash and marketable securities.However, the president believes the company needs to keep a minimumcash balance of $50,000. If necessary, the remainder of theequipment purchase will be financed using short-term credit from alocal bank. The minimum period for such a loan is three months. Thecurrent short-term interest rates are 8 percent per year and areexpected to remain at this rate through the time the equipment ispurchased. If a loan is necessary, the president has decided itshould be paid off by the end of the first quarter if possible.
5) Golden, Inc.âs board of directors has indicated an intentionto declare and pay dividends of $100,000 on the last day of eachquarter.
6) The interest on any short-term borrowing will be paid whenthe loan is repaid. Interest on Golden, Inc.âs bonds is paidsemiannually on January 31 and July 31 for the preceding six-monthperiod.
7) Property taxes are paid semiannually on February 28 andAugust 31 for the preceding six-month period.
Required: Round all answers to the nearest dollar (donot include cents).
1) Prepare Golden, Inc.âs budgeted income statement for thefirst quarter of 2016. (Ignore income taxes.)
2) Prepare Golden, Inc.âs budgeted statement of retainedearnings for the first quarter of 2016.
3) Prepare Golden, Inc.âs budgeted balance sheet as of March 31,2016. (Hint: On March 31, 2016, Bond Interest Payable is $5,000 andProperty Taxes Payable is
$1,200.)
Please show your complete calculation to understand theconcept.