Question

Chapter 18 - Midwest Tire Company Input Area 01 1550 S 1,600 prior Credit sales Credit purchases Cash disbursements 1,500 S 1,400 $ 1,700 $ Wages, taxes, and expenses Intcrest 180 80 168 80 204 80 186 80 AR at the beginning of the year 600 Collection Period Payable Period Collections from current period sales Collection from prior period sale Payables on current period purchases Payables on prior period purchases 60 60 33% 67% 33% 67% % of purchases for next Q sales Wages, tax, other as % of sales Interest & Dividend Minimum Cash Balance Borrowing rate Invested securities 75% 12% 80 800 2% 1%

Answer 1

Building A Cash Budget	Quarters
	1	2	3	4
Cash Budget
Cash Collection
Cash Collection from prior period Credit Sales	600.00	1,000.00	933.33	1,133.33
Cash Collection from current period Credit Sales	500.00	466.67	566.67	516.67
Total Cash Collection	1,100.00	1,466.67	1,500.00	1,650.00
A.R. Ending	1,000.00	933.33	1,133.33	1,033.33
Cash Disbursement
Payment for Purchases from Prior period	904.50	954.75	1,088.75	1,063.63
Payment for purchases of current period	470.25	536.25	523.88	523.88
Total Payment for Purchases	1,374.75	1,491.00	1,612.63	1,587.50
Wages, taxes and other expenses	180.00	168.00	204.00	186.00
LT Financing (Interest and Dividend)	80	80	80	80
Total Cash disbursement	1,634.75	1,739.00	1,896.63	1,853.50
Operating Cash flow
Cash inflow (Exluding interest income)	1,100.00	1,466.67	1,500.00	1,650.00
Cash Outflow	1,634.75	1,739.00	1,896.63	1,853.50
Net Cash flow	-534.75	-272.33	-396.63	-203.50
Short Term Financial Plan
Target Beginning Cash Balance	800	800	800	800
Net Cash Flow	-534.75	-272.33	-396.63	-203.50
ST Investments
Interest Income	0	0	0	0
ST Borrowing
Interest Cost		10.70	16.36	24.62
New Borrowing	534.75	283.03	412.98	228.12
Borrowing Repaid	0	0	0	0
Net Cash flow Borrowing	534.75	272.33	396.63	203.50
Ending Cash Balance	800.00	800.00	800.00	800.00
Worksheet for ST investment
Investment Beginning Balance	0	0	0	0
Investment Ending Balance	0	0	0	0
Workshet for Borrowing
Borrowing Beginning Balance		534.75	817.78	1,230.76
Borrowing Ending Balance	534.75	817.78	1,230.76	1,458.87

Assumptions
1)	Rate of Borrowing and investment provided quarterly not annual.
2)	It is Assumed that long term loan remain the same. i.e. $ 4000
3)	Interest income % given quarterly and interest income exist only when investment made.
4)	Minimum cash balance $ 800 need to maintain.
5)	Short term borrowing cost not included in format but it is part of cash flow.

Working Note-1 Cash Collection
Details			Quarters
		Q4 Prior	1	2	3	4	1
Credit Sales		900	1500	1400	1700	1550	1600
Collection from current period sales	33.33%		500	466.67	566.67	516.67	533.33
Collection from prior period sales	66.67%		600	1,000.00	933.33	1,133.33	1,033.33
Total Cash Collection	100.00%		1,100.00	1,466.67	1,500.00	1,650.00	1,566.67
AR Opening			600.00	1,000.00	933.33	1,133.33	1,033.33
AR Ending			1,000.00	933.33	1,133.33	1,033.33	1,066.67
Working Note-1- Purchases
Details			Quarters
		Q4 Prior	1	2	3	4	1
Credit Sales		900	1500	1400	1700	1550	1600
Purchase for next quarter	75%	1125	1050	1275	1162.5	1200	0
Purchase for current quarter	25%	225	375	350	425	387.5	400
Total Purchase	100%	1350	1425	1625	1588	1588	400
Working Note-3 -Payable for purchases
Details			Quarters
		Q4 Prior	1	2	3	4	1
Total Purchases		1,350.00	1,425.00	1,625.00	1,587.50	1,587.50	400.00
Payable for previous period	67%		904.50	954.75	1,088.75	1,063.63	1,063.63
Payable for current period	33%	445.50	470.25	536.25	523.88	523.88	132.00
Total Payable	1.00	445.50	1,374.75	1,491.00	1,612.63	1,587.50	1,195.63
Working Note-4 -Wages, taxes other
Details			Quarters
		Q4 Prior	1	2	3	4	1
Sales		0.00	1,500.00	1,400.00	1,700.00	1,550.00	1,600.00
Wages, Taxes & Others	12%		180.00	168.00	204.00	186.00	192.00
Working Note-5-Interest Expense
Details			Quarters
		Q4 Prior	1	2	3	4	1
Interest Expense			80	80	80	80
Borrowing	2%		4000	4000	4000	4000
Working Note-5-Interest Income
Details			Quarters
		Q4 Prior	1	2	3	4	1
Interest Income
Borrowing	1%