Construct and use a cash budget - Nathan Farmer, chief financial officer of Wang Appliance Store, is responsible for the company's budgeting process. Farmer's staff is preparing the Wang cash budget for 2014. A key input to the budgeting process is last year's statement of cash flows, which follows (amounts in thousands):
Wang Appliance Store
Statement of Cash Flows
2013
(in thousands)
Cash Flows from Operating Activities
Collections from customers $51,000
Interest Received 500
Purchase of inventory (36,000)
Operating expenses (10,200)
Net cash provided by operating activities 5,300
Cash Flows from Investing Activities
Purchase of equipment (3,500)
Purchase of investments (500)
Sale of investments 1,000
Net cash used for investing activities (3,000)
Cash Flows from Financing Activities
Payment of long term debt (400)
Issuance of Stock 2,000
Payment of cash dividends (500)
Net cash provided by financing activities 1,100
Cash
Increase (decrease) in Cash 3,400
Cash, beginning of year 2,900
Cash, end of year6,300
Requirements
1. Prepare the Wang cash budget for 2014. Date the budget simply "2014" and denote the beginning and ending cash balances as "beginning" and "ending." Assume the company expects 2014 to be the same as 2013, but with the following changes:
a. In 2014, the company expects a 10% increase in collections from customers and a 25% increase in purchases of inventory.
b. There will be no sales of investments in 2014.
c. Wang does not plan to issue stock in 2014.
d. Wang plans to end the year with a cash balance of $7,000.
2. Prepare a brief analysis of the budget. What would you suggest to increase the cash available before new financing?