The president of Univax, Inc., has just approached the company's bank seeking short-term financing for the coming year, Year 2. Univax is a distributor of commercial vacuum cleaners. The bank has stated that the loan request must be accompanied by a detailed cash budget that shows the quarters in which financing will be needed, as well as the amounts that will be needed and the quarters in which repayments can be made.
| To provide this information for the bank, the president has directed that the following data be gathered from which a cash budget can be prepared: |
| a. |
Budgeted sales and merchandise purchases for Year 2, as well as actual sales and purchases for the last quarter of Year 1, are as follows:
|
|
Sales |
Merchandise
Purchases |
| Year 1: |
|
|
| Fourth quarter actual |
$420,000 |
$320,000 |
| Year 2: |
|
|
| First quarter estimated |
$520,000 |
$400,000 |
| Second quarter estimated |
$620,000 |
$450,000 |
| Third quarter estimated |
$720,000 |
$510,000 |
| Fourth quarter estimated |
$600,000 |
$380,000 |
|
| b. |
The company typically collects 38% of a quarter's sales before the quarter ends and another 60% in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the actual data for the Year 1 fourth quarter.
|
| c. |
Some 10% of a quarter's merchandise purchases are paid for within the quarter. The remainder is paid in the following quarter.
|
| d. |
Selling and administrative expenses for Year 2 are budgeted at $81,000 per quarter plus 8% of sales. Of the fixed amount, $22,000 each quarter is depreciation.
|
| e. |
The company will pay $11,000 in cash dividends each quarter. |
| f. |
Land purchases will be made as follows during the year: $88,000 in the second quarter and $49,200 in the third quarter.
|
| g. |
The Cash account contained $43,000 at the end of Year 1. The company must maintain a minimum cash balance of at least $41,000.
|
| h. |
The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each quarter, up to a total loan balance of $100,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the year.
|
| i. |
At present, the company has no loans outstanding. |
| 1a. |
Prepare a schedule of expected cash collections on sales by quarter and in total for Year 2. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
|
| Schedule of Expected Cash Collections |
|
Year 2 Quarter
|
|
|
First |
Second |
Third |
Fourth |
Total |
| Year 1 - Fourth quarter sales |
$ |
$ |
$ |
$ |
$ |
| Year 2 - First quarter sales |
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|
|
| Year 2 - Second quarter sales |
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|
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| Year 2 - Third quarter sales |
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| Year 2 - Fourth quarter sales |
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|
|
| Total cash collections |
$ |
$ |
$ |
$ |
$ |
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| 1b. |
Prepare a schedule of expected cash disbursements for merchandise purchases, by quarter and in total for Year 2. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
|
| Schedule of Expected Cash Disbursements-Merchandise Purchases |
|
Year 2 Quarter
|
|
|
First |
Second |
Third |
Fourth |
Total |
| Year 1 - Fourth quarter purchases |
$ |
$ |
$ |
$ |
$ |
| Year 2 - First quarter purchases |
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|
|
| Year 2 - Second quarter purchases |
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| Year 2 - Third quarter purchases |
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| Year 2 - Fourth quarter purchases |
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| Total cash disbursements |
$ |
$ |
$ |
$ |
$ |
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| 2. |
Compute the expected cash disbursements for selling and administrative expenses, by quarter and in total, for Year 2. (Omit the "$" sign in your response.)
|
|
Cash
Disbursements |
| First |
$ |
| Second |
$ |
| Third |
$ |
| Fourth |
$ |
|
|
| Year |
$ |
|
|
|
| 3. |
Prepare a cash budget by quarter and in total for Year 2. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
|
Univax, Inc.
Cash Budget |
|
Year 2 Quarter
|
|
|
First |
Second |
Third |
Fourth |
Year |
| Cash balance, beginning |
$ |
$ |
$ |
$ |
$ |
| Add collections from sales |
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| |
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| Total cash available |
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| Less disbursements: |
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| Merchandise purchases |
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| Operating expenses |
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| Dividends |
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| Land |
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| Total disbursements |
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Excess (deficiency) of receipts
over disbursements |
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| Financing: |
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| Borrowings |
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| Repayments |
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| Interest |
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| Total financing |
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| Cash balance, ending |
$ |
$ |
$ |
$ |
$ |
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