PROBLEM $8-24$ Cash Budget with Supporting Schedules $[$LO$2,$ LO$4,$ L$07,$ LO$8]$

The president of Univax, Inc., has just approached the company's bank seeking short$-$term financ$-$

ing 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:

b$.$ The company typically collects $33\%$ of a quarter's sales before the quarter ends and another

$65\%$ 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.

c$.$ Some $20\%$ of a quarter's merchandise purchases are paid for within the quarter. The remain$-$

der is paid in the following quarter.

d$.$ Selling and administrative expenses for Year $2$ are budgeted at $$90,000$ per quarter plus $12\%$

of sales. Of the fixed amount, $$20,000$ each quarter is depreciation.

e$.$ The company will pay $$10,000$ in cash dividends each quarter.

f$.$ Land purchases will be made as follows during the year: $$80,000$ in the second quarter and

$$48,500$ in the third quarter.

g$.$ The Cash account contained $$20,000$ at the end of Year $1.$ The company must maintain a mini$-$

mum cash balance of at least $$18,000.$

h$.$ The company has an agreement with a local bank that allows the company to borrow in incre$-$

ments 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:

Prepare the following, by quarter and in total, for Year $2$:

a$.$ A schedule of expected cash collections on sales.

b$.$ A schedule of expected cash disbursements for merchandise purchases.

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 $2.$