ACCT504 Case Study 3 (Learning Objective 5: Construct and use a cash budget) Nat

Question

ACCT504 Case Study 3 (Learning Objective 5: Construct and use a cash budget) Nathan Farmer, chief financial officer of Wang Appliance Store, is responsible for the company’s budgeting process. Farmer’s staff is preparing the Wang cash budget for 2014. A key input to the budgeting process is last year’s statement of cash flows, which follows (amounts in thousands): Wang Appliance Store Statement of Cash Flows 2013 (in thousands)

Cash Flows from Operating Activities

Collections from customers $51,000

Interest Received 500

Purchase of inventory (36,000)

Operating expenses (10,200)

Net cash provided by operating activities 5,300

Cash Flows from Investing Activities

Purchase of equipment (3,500)

Purchase of investments (500)

Sale of investments 1,000

Net cash used for investing activities (3,000 )

Cash Flows from Financing Activities

Payment of long term debt (400)

Issuance of Stock 2,000

Payment of cash dividends (500)

Net cash provided by financing activities 1,100

Cash

Increase (decrease) in Cash 3,400

Cash, beginning of year 2,900

Cash, end of year 6,300

Explanation / Answer

Cash flow statement for 2013:

Net cash from operating+Net cash flow investment+Net cash flow in financing=5300-3000+1100=$3400

Cash at begining of 2014= cash at begining of 2013+ Net cash from all activites

=2900+3400=$6300

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