The president of Univax, Inc., a distributor of commercial vacuum cleaners, approached the company's bank seeking short-term financing for the coming year. The bank requested a detailed cash budget showing when financing will be needed and repayment can be made. The budget includes sales, purchases, expenses, and cash balances by quarter for the current year and next year. It also includes land purchases and available loan amounts to calculate the expected cash needs and financing required each quarter.
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The president of Univax, Inc., has just approached the companys ba.pdf
1. 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.
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:
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.
Some 20% of a quarter's merchandise purchases are paid for within the quarter. The remainder
is paid in the following quarter.
Selling and administrative expenses for Year 2 are budgeted at $365,000 per quarter plus 10% of
sales. Of the fixed amount, $120,000 each quarter is depreciation.
Land purchases will be made as follows during the year: $324,000 in the second quarter and
$82,500 in the third quarter.
The Cash account contained $96,000 at the end of Year 1. The company must maintain a
minimum cash balance of at least $40,000.
The company has an agreement with a local bank that allows the company to borrow up to a total
loan balance of $800,000. 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.
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.)
Year 2 Quarter
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.)
Year 2 Quarter
2. Compute the expected cash disbursements for selling and administrative expenses, by quarter
and in total, for Year 2.
Prepare a cash budget by quarter and in total for Year 2. Assume that selling and administrative
expenses are paid in the month incurred. (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.Total Financing should be indicated with a
minus sign when the company is repaying amounts that were previously borrowed.)
Year 2 Quarter
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.
Solution
1a
1b
2)
3)A schedule of expected cash collections on
sales.Sales#########$12,00,000$11,50,000$16,00,000$18,30,0004th Q Year 11st Q Year 22nd
Q Year 23rd Q Year 24th Q Year 2TotalCollections in month of sales
(48%)$5,76,000$5,52,000$7,68,000$8,78,400$27,74,400Collections in month following sales
(50%)$5,50,000$6,00,000$5,75,000$8,00,000$25,25,000$11,26,000$11,52,000$13,43,000$16,7
8,400$52,99,400