PROBLEM 8-24 Cash Budget with Supporting Schedules (L02, L04, LOTLOB) The president of Univas, Ines, 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 each 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 repuyments 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: 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: 1 Merchandise Purchases $180.000 2 Sales 3. Year 1 4 Fourth quarter actual $300.000 5 Year 2 6 First quarter estimated $400.000 7 Second quarter estimated $500,000 8 Third quarter estimated $600.000 9 Fourth quarter estimated $480,000 10 H4 Sheeti Sheet2 Sheet $260.000 $310.000 $370.000 $240,000 The company typically collects 33% of a quarter's sales before the quarter ends and other 65% in the following quarter. The remainder is uncollectible. This pattern of collection is now being experienced in the actual data for the Year I 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. The company will pay $10,000 in cash dividends cach quarter. Land purchases will be made as follows during the year: 580,000 in the second quarter and $48,500 in the third quarter 8 The Cash account contained $20,000 at the end of Year 1. The company must maintain a mini- mum cash balance of at least SI8.000 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 19 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. At present, the company has no loans outstanding. Required: 1. Prepare the following, by quarter and in total, for Year 2: A schedule of expected cash collections on sales. h A schedule of expected cash disbursements for merchandise purchases. 2. Compute the expected cash disbursements for selling and administrative expenses, by quarter and in total, for Year 2. 3. Prepare a cash budget by quarter and in total for Year 2
