PROBLEM 8-24 Cash Budget with Supporting Schedules (LO2, L04, LO7, LOB] 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 databe 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: A C Merchandise Purchases $180.000 2 Sales 3 YE 1 4 Fourth quarter actual $300.000 5 Year 2: 6 First quarter estimated $400.000 7 Second quarter estimated $500 8 Third quarter estimated $600.000 9 Fourth quarter estimated $480,000 10 HE Sheetl Sheetz Sheet3 $260.000 $310.000 $370,000 $240,000 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. 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. & 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: 1. Prepare the following, by quarter and in total, for Year 2: A schedule of expected cash collections on sales. b 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 a. Given Data POB-24: UNIVAX, INC. Budgeted Sales and Merchandise Purchases: Merchandise Sales Purchases Year 1: Fourth quarter $ 300,000 180,000 Year 2: First quarter er $ 400,000 $ 260,000 Second quarte $ 500,000 $ 310,000 Third quarter & $ 600,000 $ 370,000 Fourth quarter $ 480,000 S 240,000 Additional information: Percentage of sales collected in same quarter Percentage of sales collected in quarter followir Percentage of sales deemed uncollectible Percentage of merchandise purchases paid in Percentage of merchandise purchases pain in 1 Budgeted quarterly operating expenses for Yea S plus percentage of sales Amount of depreciation budgeted each quarters Dividends to be paid each quarter $ Cash purchase of land in second quarter S Cash purchase of land in third quarter S Cash account balance at end of Year 1 S Minimum cash balance required S Bank loan borrowing increments S Maximum loan balance allowed S Interest rate per quarter on bank loans Current outstanding loan balance S 33% 65% 2% 20% 80% 90,000 12% 20,000 10,000 80,000 48,500 20,000 18,000 10,000 100,000 3.0% Fourth Total Problem 08-24 UNIVAX, INC. 1a. Schedule of expected cash collections Year 2 Quarter First Second Third 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 Total Year 1b. Schedule of expected cash disbursements for merchandise purchases for Year 2 Year 2 Quarter First Second Third Fourth Year 1 - Fourth quarter purchases: Year 2 - First quarter purchases: Year 2 - Second quarter purchases: Year 2 - Third quarter purchases: Year 2 - Fourth quarter purchases! Total cash disbursements 2. Budgeted selling and administrative expenses for Year 2 Year 2 Quarter First Second Third Fourth Budgeted sales Variable expense rate Variable expenses Fixed expenses Total expenses Less depreciation Cash disbursements 3. Cash budget for Year 2 Year 2 Quarter First Second Third Fourth Cash balance, beginning Add collections from sales Total cash available Less disbursements: Merchandise purchases Operating expenses Dividends Land Total disbursements Excess (deficiency) of receipts over disbursements Financing: Borrowings Repayments Interest Total financing Cash balance, ending Year