Question

The board of directors of the Cortez Beach Yacht Club (CBYC) is developing plans to acquire more equipment for lessons and rentals and to expand club facilities. The board plans to purchase about $69,000 of new equipment each year and wants to begin a fund to purchase a $619,000 piece of property for club expansion. The club manager is concerned about the club's capability to purchase equipment and expand its facilities. One club member has agreed to help prepare the following financial statements and help the manager ascertain whether the plans are realistic. Additional information follows the financial statements. CORTEZ BEACH YACHT CLUB Statement of Income (Cash Basis) For the Year Ended October 31 Year 9 Year 8 $ 900,000 492,700 5,900 $1,398,600 $ 619,000 379,000 4,900 $1,002,900 $ Cash revenues Annual membership fees Lesson and class fees Miscellaneous Total cash received Cash costs Manager's salary and benefits Regular employees' wages and benefits Lesson and class employees' wages and benefits Supplies Utilities (heat and light) Mortgage interest Miscellaneous Total cash costs Cash income $ 91,000 399,000 409,000 35,800 47,800 55,200 5,900 $1,043,700 $ 354,900 91,000 399,000 319,000 34,800 33,800 62,800 4,900 945,300 57,600 $ $

Answer 1

According to requirement of the question, we have to prepare a cash budget.

Requirement a:- Construct a cash budget for year 10 for Cortez Beach Yacht Club

Solution:-

Cortez Beach Yacht Club

Budgeted Statement of Income (Cash Basis)

For the Year 10

Cash Revenue
Annual membership fees (Working Note 1)	$1,029,600
Lesson and Class fees ($492,700 / $379,000) * $492,700	$640,510
Miscellaneous ($5,900 / $4,900) * $5,900	$7,104
Total Cash Received	$1,677,214
Cash Costs
Manager's Salary and Benefits ($91,000 * 1.18)	$107,380
Regular employees wages and benefits ($399,000 * 1.18)	$470,820
Lesson and Class employee wages and benefits (given)	$614,150
Supplies ($35,800 * 1.22)	$43,676
Utilities (heat and light) ($47,800 * 1.22)	$58,316
Mortgage interest (Working Note 5)	$56,880
Miscellaneous ($5,900 * 1.22)	$7,198
Total Cash Expenses	$1,358,420
Cash Income ($1,677,214 -$1,358,420)	$318,794
Additional Cash Flows
Cash Payments:
Mortgage payment (given)	$79,000
Accounts Payable balance for supplies at 31/10/Year 9 (given)	$6,900
Accounts payable on equipment at 31/10/Year 9 ($69,000 - $39,000)	$30,000
Planned New Equipment Purchase	$69,000
Total Cash Payments	$184,900
Cash Inflows from Income Statement	$318,794
Beginning Cash balance (including petty cash) ($23,500 + $1,550)	$25,050
Cash Available for Working Capital and to acquire property ($318,794 - $184,900) + $25,050	$158,944

Working Note:-

1. Annual membership fees = $900,000 , membership rose 4% and membership fees increased by 10%

= $900,000 * 1.04 * 1.1 = $1,029,600

2. Wages and benefits of regular employees and manager will increase by 18%.

3. Lesson and class employee wages and benefits will increase by $614,150.

4. Equipment depreciation and supplies, utilities and miscellaneous expenses are expected to increase 22%.

5. On November 1, Year 9, the unpaid balance after annual payment is $948,000.

= $948,000 * 0.06 = $56,880

Thank you.

In case of any doubt, please feel free to ask me.