The board of directors of the Cortez Beach Yacht Club (CBYC) is developing plans

Question

The board of directors of the Cortez Beach Yacht Club (CBYC) is developing plans to acquire more equipment for lessons and rentals and to expand club facilities. The board plans to purchase about $69,000 of new equipment each year and wants to begin a fund to purchase a $619,000 piece of property for club expansion. The club manager is concerned about the club’s capability to purchase equipment and expand its facilities. One club member has agreed to help prepare the following financial statements and help the manager ascertain whether the plans are realistic. Additional information follows the financial statements.

CORTEZ BEACH YACHT CLUB Statement of Income (Cash Basis) For the Year Ended October 31 Year 9 Year 8 Cash revenues Annual membership fees $ 900,000 $ 619,000 Lesson and class fees 492,700 379,000 Miscellaneous 5,900 4,900 Total cash received $ 1,398,600 $ 1,002,900 Cash costs Manager’s salary and benefits $ 91,000 $ 91,000 Regular employees’ wages and benefits 399,000 399,000 Lesson and class employees’ wages and benefits 409,000 319,000 Supplies 35,800 34,800 Utilities (heat and light) 47,800 33,800 Mortgage interest 79,700 85,100 Miscellaneous 5,900 4,900 Total cash costs $ 1,068,200 $ 967,600 $ 330,400 $ 35,300 Cash income Additional Information (1) Other financial information as of October 31, Year 9: (a) Cash in checking account, $23,500. (b) Petty cash, $1,550. (c) Outstanding mortgage balance, $948,000. (d) Accounts payable for supplies and utilities unpaid as of October 31, Year 9, and due in November Year 9, $6,900. (2) The club purchased $69,000 worth of sailing equipment during the current fiscal year (ending October 31, Year 9). Cash of $39,000 was paid on delivery, with the balance due on October 1, which had not been paid as of October 31, Year 9. (3) The club began operations in year 3 in rental quarters. In October Year 5, it purchased its current property (land and building) for $1,542,000, paying $278,000 down and agreeing to pay $79,000 plus 6 percent interest annually on the previously unpaid loan balance each November 1, starting November 1, Year 6. (4) Membership rose 4 percent during year 9, approximately the same annual rate of increase the club has experienced since it opened and that is expected to continue in the future. (5) Membership fees were increased by 18 percent in year 9. The board has tentative plans to increase them by 10 percent in year 10. (6) Lesson and class fees have not been increased for three years. The number of classes and lessons has grown significantly each year; the percentage growth experienced in year 9 is expected to be repeated in year 10. (7) Miscellaneous revenues are expected to grow in year 10 (over year 9) at the same percentage as experienced in year 9 (over year 8). (8) Lesson and class employees’ wages and benefits will increase to $614,150. The wages and benefits of regular employees and the manager will increase 18 percent. Equipment depreciation and supplies, utilities, and miscellaneous expenses are expected to increase 22 percent. Required: (a) Construct a cash budget for year 10 for Cortez Beach Yacht Club. (Do not round intermediate calculations)

Explanation / Answer

Cash Budget

$ Cash Receipts: Annual Membership fees (900000*1.04*1.1) 1029600 Lesson and Class Fees (492700*1.30) 640510 Miscellaneous (5900*1.2040) 7104 Total Cash to be received 1677214 Cash Cost: Managers's Salary and benefits 91000*1.18 107380 Regular Employees wages and benefits 399000*1.18 470820 Lesson and class employees' wages and benefits 614150 Supplies 35800*1.22 43676 Utilities 47800*1.22 58316 Mortgage Interest 948000*6% 56880 Miscellaneous 5900*1.22 7198 Total Cash Cost 1358420 Cash Income 318794 + Opening cash balance(23500+1550) 25050 - Loan Installment -79000 Closing Cash Balance 264844

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