P5-74B. (Learning Objective 3: Preparing a cash budget and using cash-flow information)

Don Beecher, chief financial officer of Carlisle Wireless, is responsible for the company’s budgeting process. Beecher’s staff is preparing the Carlisle cash budget for 20X7. A key input to the budgeting process is last year’s statement of cash flows, which follows

(amount in thousands):

Requirements 1. Prepare the Carlisle Wireless cash budget for 20X7. Date the budget simply “20X7” and denote the beginning and ending cash balances as “beginning” and “ending.” Assume the company expects 20X7 to be the same as 2010, but with the following changes:

a. In 20X7, the company expects a 15% increase in collections from customers and a 22%
increase in purchases of inventory.

b. There will be no sales of investments in 20X7.

c. Carlisle plans to issue no shares in 20X7.

d. Carlisle plans to end the year with a cash balance of €3,650 (thousand).
2. Does the company’s cash budget for 20X7 suggest that Carlisle is growing, holding steady, or decreasing in size?

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A1 1 2 (In thousands) Carlisle Wireless Statement of Cash Flows 20X6 3456 3 Cash Flows from Operating Activities Collections from customers 62,000 Interest received 700 Purchases of inventory (47,000) 7 Operating expenses (13,700) 8 Net cash provided by operating activities 2,000 9 Purchases of equipment 10 Cash Flows from Investing Activities (4,100) 11 12 13 18 21 22 23 4567890122 20 Cash, beginning of year Cash, end of year Purchases of investments Sales of investments Net cash used for investing activities 14 Cash Flows from Financing Activities Payment of long-term debt 15 16 Issuance of shares 17 Payment of cash dividends 19 Cash Net cash provided by financing activities Increase (decrease) in Cash (300) 900 (3,500) (500) 1,500 (400) 600 (900) 2,800 1,900