Question

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: Merchandise Sales $400,000 $300,000 Fourth quarter actual Year 2: First quarter estimated Second quarter estimated Third quarter estimated Fourth quarter estimated $500,000 $600,000 $700,000 $490,000 $580,000 $380,000 $430,000 $360,000 b. The company typically collects 48% of a quarter's sales before the quarter ends and another 50% 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. in the following quarter the fixed amount, $20,000 each quarter is depreciation. c. Some 15% of a quarter's merchandise purchases are paid for within the quarter. The remainder is paid d. Selling and administrative expenses for Year 2 are budgeted at S84 ,000 per quarter plus 8% of sales. Of e. The company will pay $11,000 in cash dividends each quarter. f. Land purchases will be made as follows during the year: $86,000 in the second quarter and $49,000 in the third quarter g. The Cash account contained $41,000 at the end of Year 1. The company must maintain a minimum cash balance of at least $39,000. h. The company has an agreement with a local bank that allows the company to borrow in increments of $10,000 at the beginning of each quarter, up to a total loan balance of $100,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the year i. At present, the company has no loans outstanding. Required 1a. Prepare a schedule of expected cash collections on sales by quarter and in total for Year 2. (Leave no cells blank-be certain to enter "O" wherever required. Omit the "$" sign in your response.) Required: 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 "o" wherever required. Omit the "$" sign in your response.) Schedule of Expected Cash Collections Year 2 Quarter Fourth First Third Total Year 1- Fourth quarter sales Year 2-First quarter sales Year 2-Second quarter sales Year 2-Third quarter sales Year 2-Fourth quarter sales Total cash collections 1b. Prepare a schedule of expected cash disbursements for merchandise purchases, by quarter and in total for Year 2. (Leave no cells blank be certain to enter "O" wherever required. Omit the "$ sign in your response.) Schedule of Expected Cash Disbursements -Merchandise Purchases Year 2 Quarter Second First Fourth Total Year 1-Fourth quarter purchases Year 2-First quarter purchases Year 2-Second quarter purchases Year 2-Third quarter purchases Year 2 -Fourth quartor purchases Total cash disbursements 2. Compute the expected cash disbursements for selling and administrative expenses, by quarter and in 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 "O" wherever required. Omit the "$" sign in your response.) Univax, Inc. Cash Budget Year 2 Quarter Year Fourth Third First Cash balance, beginning Add collections from sales Total cash available Less disbursements Merchandise purchases Operating expenses Land Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending

Answer 1

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Cash collection schedule	Year 2- Qtr. 1	Year 2- Qtr. 2	Year 2- Qtr. 3	Year 2- Qtr. 4	Total		Particulars	Year 1- Qtr. 4	Year 2- Qtr. 1	Year 2- Qtr. 2	Year 2- Qtr. 3	Year 2- Qtr. 4	Total	Note C
Year-1 Fourth Qtr. Sales	200,000.00				200,000.00	Note C	Sales revenue	400,000.00	500,000.00	600,000.00	700,000.00	580,000.00	2,380,000.00
Year-2 First Qtr. Sales	240,000.00	250,000.00			490,000.00	Note C	Collection in Same qtr.- 48%	192,000.00	240,000.00	288,000.00	336,000.00	278,400.00	1,142,400.00
Year-2 Second Qtr. Sales		288,000.00	300,000.00		588,000.00	Note C	Collection in next qtr.- 50%	200,000.00	250,000.00	300,000.00	350,000.00	290,000.00	1,190,000.00
Year-2 Third Qtr. Sales			336,000.00	350,000.00	686,000.00	Note C
Year-2 Fourth Qtr. Sales				278,400.00	278,400.00	Note C	Merchandise purchases	300,000.00	380,000.00	430,000.00	490,000.00	460,000.00	1,760,000.00	Note D
Total cash collections	440,000.00	538,000.00	636,000.00	628,400.00	2,242,400.00		Paid in Same qtr.- 15%	45,000.00	57,000.00	64,500.00	73,500.00	69,000.00	264,000.00
							Paid in next qtr.- 85%	255,000.00	323,000.00	365,500.00	416,500.00	391,000.00	1,496,000.00
Cash disbursement for purchases	Year 2- Qtr. 1	Year 2- Qtr. 2	Year 2- Qtr. 3	Year 2- Qtr. 4	Total
Year-1 Fourth Qtr. Purchases	255,000.00				255,000.00	Note D	Selling & admin		64,000.00	64,000.00	64,000.00	64,000.00	256,000.00	Note E
Year-2 First Qtr. Purchases	57,000.00	323,000.00			380,000.00	Note D	Sales commission at 8%		40,000.00	48,000.00	56,000.00	46,400.00	190,400.00
Year-2 Second Qtr. Purchases		64,500.00	365,500.00		430,000.00	Note D	Total Operating Expenses		104,000.00	112,000.00	120,000.00	110,400.00	446,400.00
Year-2 Third Qtr. Purchases			73,500.00	416,500.00	490,000.00	Note D
Year-2 Fourth Qtr. Purchases				69,000.00	69,000.00	Note D
Total cash disbursements	312,000.00	387,500.00	439,000.00	485,500.00	1,624,000.00
Cash disbursement for Selling	Year 2- Qtr. 1	Year 2- Qtr. 2	Year 2- Qtr. 3	Year 2- Qtr. 4	Total
Year-2 First Qtr.	104,000.00	112,000.00	120,000.00	110,400.00	446,400.00	Note E
Cash flow schedule	January	February	March		Total
Beginning cash balance	41,000.00	54,000.00	45,500.00	41,300.00
Add: Collection from sales	440,000.00	538,000.00	636,000.00	628,400.00	2,242,400.00
Total cash available	481,000.00	592,000.00	681,500.00	669,700.00
Less: Disbursement
Merchandise Purchases	312,000.00	387,500.00	439,000.00	485,500.00	1,624,000.00
Operating Expenses	104,000.00	112,000.00	120,000.00	110,400.00	446,400.00
Dividends	11,000.00	11,000.00	11,000.00	11,000.00	44,000.00
Land	-	86,000.00	49,000.00	-	135,000.00
Total Disbursements	427,000.00	596,500.00	619,000.00	606,900.00
Cash excess (deficiency) before financing	54,000.00	(4,500.00)	62,500.00	62,800.00
Financing:
Borrowing to maintain $39,000 balance	-	50,000.00	-	-	50,000.00
Loan principal repaid	-	-	20,000.00	20,000.00	40,000.00
Loan interest paid	-	-	1,200.00	1,800.00	3,000.00
Ending cash balance	54,000.00	45,500.00	41,300.00	41,000.00
Interest on loan will be 1% of 20,000 for each month for 6 months i.e. 20,000*1%*6= $ 1,200.
Interest on loan will be 1% of 20,000 for each month for 9 months i.e. 20,000*1%*9= $ 1,800.
Full loan us not repaid because company has to keep minimum of $ 39,000 cash balance.