Question

age may correctly. Click here to learn more. 4. Cash budget Aa Aa E Mooney Equipment is putting together its cash budget for the following year and has forecasted expected cash collections over the next five quarters (one year plus the first quarter of next year). The cash collection estimates are based on sales projections and expected collection of receivables. The sales and cash collection estimates are shown in the following table (in millions of dollars): Q2 Q5 Sales Total cash collections Q1 $1,320 $1,320 Q3 $1,620 $1,670 $1,370 $1,420 Q4 $1,470 $1,720 $1,420 You also have the following information about Mooney Equipment: You are at the end of the current year, and Q1 is the next period. • In any given period, Mooney's purchases from suppliers generally account for 72% of the expected sales in the next period, and wages, supplies, and taxes are expected to be 15% of the next period's sales. • In the third quarter, Mooney expects to expand one of its plants, which will require an additional $1,072 million investment. Every quarter, Mooney pays $55 million in interest and dividend payments to long-term debt and equity investors. • Mooney prefers to keep a minimum target cash balance of at least $14 million at all times.

Answer 1

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Mooney	$ Millions
Answer 1	Qtr. 1
Collections	1,320.00
Less: Disbursements
Material Payment (1620*72%)	1,166.40
Wages, supplies and others (1620*15%)	243.00
Interest and dividend	55.00
Total cash payments	1,464.40
Net Cash inflow	(144.40)
Cash budget	Qtr. 1	Qtr. 2	Qtr. 3	Qtr. 4	Total
Beginning Cash Balance	36.00	(108.40)	(246.30)	(1,232.20)	36.00
Plus: Collections	1,320.00	1,370.00	1,420.00	1,420.00	5,530.00
Cash Available	1,356.00	1,261.60	1,173.70	187.80	5,566.00
Disbursements
Direct Material Payment	1,166.40	1,202.40	1,058.40	1,238.40	4,665.60
Direct Labor Budget	243.00	250.50	220.50	258.00	972.00
Interest and dividend	55.00	55.00	55.00	55.00	220.00
Investment in plant	-	-	1,072.00	-	1,072.00
Total cash payments	1,464.40	1,507.90	2,405.90	1,551.40	6,929.60
Ending cash balance before financing	(108.40)	(246.30)	(1,232.20)	(1,363.60)	(1,363.60)

Mooney has a negative cash balance every quarter so its investable funds are zero.

The largest cash deficit is in Quarter 3 of $ 1,232.20 millions.

The statement is false because income statement is prepared on accrual assumption but cash budget is made on cash basis.