Adjust the Cash Balance We obtain the following 2018 forecasts of selected finan

Question

Adjust the Cash Balance
We obtain the following 2018 forecasts of selected financial statement line items for Journey Company.

a. Does forecasted cash deviate from the normal level for this company?
Calculate the company's normal cash level as a percentage of sales.
Round answer to one decimal place.
Answer%
Using the rounded answer above, compute what should be the normal cash balance for FY2018.
Round answer to the nearest million.
$Answer million

b. Is the deviation in part a large enough to require adjustment? Explain.

No. the deviation is not large enough to require an adjustment.

Yes, the deviation is large enough to require an adjustment.

c. Identify three ways to adjust the forecasted cash balance.
Which option would least likely be used to adjust the cash balance?  

Sell marketable securities

Decrease capital expenditures

Increase long-term debt

Sell treasury stock

d. Fill in the blanks in the following statement of cash flows assuming long-term debt is used to adjust the forecasted cash balance.

Use negative signs with answers, when appropriate.

e. Fill in the blanks in the following statement of cash flows assuming marketable securities are used to adjust the forecasted cash balance.

Use negative signs with answers, when appropriate.

$ millions 2017 Actual 2018 Est. Net Sales $669,666 $701,551 Marketable securities 67,096 62,096 Long-term debt 346,558 308,437 Treasury stock (deducted from equity) 51,174 51,174 Cash generated by operations 57,474 Cash used for investing (14,686) Cash used for financing (54,882) Total net change in cash (12,094) Cash at beginning of period 51,141 Cash at end of period $39,047

Explanation / Answer

a) Normal cash level as a % of sales = 51141/669666 = 7.6% Normal cash balance for 2018 = Estimated sales*% of normal cash level =701551*7.6% = $            53,318 million b) The deviation as a % = (53318-39047)/53318 = 26.77% Yes, the deviation is large enough to require an adjustment; it is about 26.8% of the estimated level. c) Option least likely be used to adjust the cash balance is: *Decreasing capital expenditures d) Cash generated by operations 57474 Cash used for investing -14686 Cash used for financing -40611 Total change in cash 2177 Cash at beginning of period 51141 Cash at end of period 53318 e) Cash generated by operations 71745 Cash used for investing -14686 Cash used for financing -54882 Total change in cash 2177 Cash at beginning of period 51141 Cash at end of period 53318

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