The President of Univax Inc. has just approached the company's bank seeking short-term financing for the

coming year, 2021 . That 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 the amounts that will be needed and

the quarters in which repayments can be made.

In order 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 2021, as well as actual sales and purchases for the last

quarter for 2020 are:

Sales Merchandise Purchases

2020

Fourth Quarter Actual Sales 300,000 Merchandise purchase 180,000

2021

First Quarter Budgeted Sales 400,000 Merchandise purchase 260,000

Second Quarter Budgeted Sales 500,000 Merchandise purchase 310,000

Third Quarter Budgeted Sales 600,000 Merchandise purchase 370,000

Fourth Quarter Budgeted Sales 480,000 Merchandise purchase 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 reminder is uncollectible. This pattern of collection is now being experienced in the actual data for the 2020 fourth quarter.

c.Some 20% of a quarter's merchandise purchases are paid for within the quarter. The reminder is paid in the quarter following.

d.Operating expenses for2021 are budgeted quarterly at $90,000 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.Equipment 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 2020. The company must maintain a minimum cash balance of at least $18,000.

h.Any borrowing will take place at the beginning of a quarter, and any repayments will be made at the end of a quarter at an annual interest rate of 10%. Interest is paid only when principal is repaid. All borrowings and all repayments of principal must be in round $1,000 amounts. Interest payments can be in any amount.

i.At present, the company has no loans outstanding.

Required

1.Create the following, by quarter, for the year 2021 :

a. A schedule of budgeted cash collections on sales.

b. A schedule of budgeted cash payments for merchandise purchases.

2.Compute the expected cash payments for operating expenses, by quarter, for the year2021.

3.Using data from (1) and (2) above and other data as needed, prepare a cash budget for 2021,

by quarter for the year. Show clearly on your budget the quarter(s) in which repayments can be made, as requested by the company's bank.

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