Westex Products is a wholesale distributor of industrial cleaning products. The company treasurer has assembled the following information to assist in preparing a detailed cash budget to support the company's loan application for short-term financing with a local bank: a. Budgeted sales and merchandise purchases for the year 2020, as well as actual sales and purchases for the last quarter of 2019, are as follows: Merchandise Purchases Sales $ 400,000 $252,000 2019: Fourth-quarter actual 2020: First-quarter estimated Second-quarter estimated Third-quarter estimated Fourth-quarter estimated 600,000 800,000 1,000,000 400,000 372,000 496,000 610,000 252,000 b. The company normally collects 65% of a quarter's sales before the quarter ends and another 33% in the following quarter. The remainder are uncollectible. This pattern of collections is now being experienced in the 2019 fourth-quarter actual data. C. 80% of a quarter's merchandise purchases are paid for within the quarter. The remainder are paid in the following quarter. d. Operating expenses for the year 2020 are budgeted quarterly at $100,000 plus 15% of sales. Of the fixed amount, $40,000 each quarter is depreciation. e. The company will pay $20,000 in dividends each quarter. f. Equipment purchases of $150,800 will be made in the second quarter, and purchases of $96,000 will be made in the third quarter. These purchases will be for cash. g. The cash account contained $20,000 at the end of 2019. The treasurer feels that this represents a minimum balance that must be maintained. 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 the principal is repaid. All borrowings and all repayments of the principal must be in round $1,000 amounts. Interest payments can be in any amount. (Compute interest on whole months, e.g., 1/12, 2/12.) i. At present, the company has no loans outstanding. Required: 1. Prepare the following by quarter and in total for the year 2020: WESTEX PRODUCTS Schedule of Expected Cash Collections First Second Third Fourth 2019-Fourth-quarter sales 2020-First-quarter sales 2020-Second-quarter sales 2020-Third-quarter sales 2020-Fourth-quarter sales Total cash disbursements b. A schedule of budgeted cash disbursements for merchandise purchases. WESTEX PRODUCTS Schedule of Budgeted Cash Disbursements for Merchandise Purchases First Second Third Fourth 2019-Fourth-quarter purchases 2020-First-quarter purchases 2020-Second-quarter purchases 2020-Third-quarter purchases 2020-Fourth-quarter purchases Total cash payments 2. Compute the expected cash payments for operating expenses, by quarter and in total, for the year 2020. First Second Third Fourth Year Cash payments 3. Prepare a cash budget, by quarter and in total, for the year 2020. In your budget. clearly show the quarter(s) in which borrowing will be necessary and the quarter(s) in which cepayments can be made, as requested by the company's bank. (Roundup "Borrowing" and "Repayments" answers to the nearest whole dollar amount. Any "Repayments", "Interest" and "Deficiency of cash" should be indicated by a minus sign.) WESTEX PRODUCTS Cash Budget for year 2020 First Second Third Total cash available Deduct: Disbursements: First Second Third Total cash available Deduct: Disbursements: Total disbursements Excess (deficiency) of receipts over disbussements Financing: Total financing 4. Consider the cash balance at the end of the fourth quarter as calculated in Requirement (3). Recalculate the ending balance if repayment of principal can be in round $100 amounts. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Ending cash balance
