EIN 5359 Industrial Financial Decisions Fall 2017 Exam II December 8, 2017 (10)
ID: 2804241 • Letter: E
Question
EIN 5359 Industrial Financial Decisions Fall 2017 Exam II December 8, 2017 (10) la. Given the information that follows, prepare a cash budget for the XYZ Store for the first six months of 2017. All prices and costs remain constant. Sales are 89% for credit and 1% for cash. With respect to credit sales, 45% are collected in the month after the sale, 30% in the second month, and 25% in the third. Bad-debt losses are insignificant. Sales, actual and estimated, are (* for actual sales): October 2016 $270,000* March 2017 $330,000 November 2016 340,000* April 2017 310,000 December 2016 320,000* May 2017 375,000 January 2017 290,000 June 2017 315,000 February 2017 300,000 July 2017 360,000 Merchandises are purchased one month before the anticipated sales at 78% (COGS), Assume all purchases arrived in the same month of ordering, and the company will pay the purchase exactly 1 month after placing the order. Wages and salaries are: January 2017 $40,000 April 2017 $60,000 February 2017 45,000 May 2017 55,000 March 2017 50,000 June 2017 52,000 Rent is $5,000 a month. Interest of $7,500 is due on the last day of each calendar quarter, and no quarterly cash dividends are planned. A tax prepayment of $50,000 for 2017 income is due in April. A capital investment of $50,000 is planned in June, to be paid for then. The company has a cash balance of $100,000 at December 31, 2016, which is the minimum desired level for cash. Funds can be borrowed in multiples of $10,000. (Ignore interest on such borrowings.) (5) 1b. Use the cash budget worked out in Part (a) and the following additional information to prepare a forecast income statement for the first half of 2017 for the XYZ Store. (Note that the store maintains a safety stock of inventory.) Inventory on 12/31/16 was $180,000. Depreciation is taken on a straight-line basis on $240,000 of assets with an average remaining life of 10 years and no salvage value. The tax rate is 34 percent. (5) le. Given the following information and that contained in Parts (a) and (b), construct a forecast balance sheet as of June 30, 2017, for the XYZ Store.Explanation / Answer
10.1.a. Statement of cash budget:
Jan
Feb
Mar
April
May
June
Total
Total Sales
290,000
300,000
330,000
310,000
375,000
315,000
1,920,000
Credit Sales
258,100
267,000
293,700
275,900
333,750
280,350
1,708,800
Cash Collection
Cash sales
31,900
33,000
36,300
34,100
41,250
34,650
211,200
45%
116,145
120,150
132,165
124,155
150,188
126,158
768,960
30%
99,680
77,430
80,100
88,110
82,770
100,125
528,215
25%
75,650
71,200
64,525
66,750
73,425
68,975
420,525
Total Collection
323,375
301,780
313,090
313,115
347,633
329,908
1,928,900
less payments
Purchases
234,000
257,400
241,800
292,500
245,700
280,800
1,552,200
Salaries and wages
40,000
45,000
50,000
65,000
55,000
52,000
307,000
Rent
5,000
5,000
5,000
5,000
5,000
5,000
30,000
Interest
7,500
7,500
15,000
Taxes
50,000
50,000
Capital investment
50,000
50,000
Total payments
286,500
307,400
296,800
420,000
305,700
387,800
2,004,200
Surplus/Deficit
36,875
(5,620)
16,290
(106,885)
41,933
(57,893)
(75,300)
Add opening Balance
100,000
136,875
131,255
147,545
40,660
82,593
100,000
Closing Balance
136,875
131,255
147,545
40,660
82,593
24,700
24,700
Minimum cash balance
100,000
100,000
100,000
100,000
100,000
100,000
100,000
Additional borrowing
-
-
-
59,340
17,408
75,300
75,300
Borrowings will be
-
-
-
150,000
20,000
80,000
175,000
5.1.b. Income statement for the first half year 2017:
Sales
1,920,000
less cost of goods sold
1,497,600
Gross profit
422,400
less operating expenses
Salaries and wages
307,000
Rent
30,000
Depreciation
12,000
Total operating expenses
349,000
EBIT
73,400
less interest
15,000
Earnings before taxes
58,400
less taxes
19,856
Net income
38,544
Jan
Feb
Mar
April
May
June
Total
Total Sales
290,000
300,000
330,000
310,000
375,000
315,000
1,920,000
Credit Sales
258,100
267,000
293,700
275,900
333,750
280,350
1,708,800
Cash Collection
Cash sales
31,900
33,000
36,300
34,100
41,250
34,650
211,200
45%
116,145
120,150
132,165
124,155
150,188
126,158
768,960
30%
99,680
77,430
80,100
88,110
82,770
100,125
528,215
25%
75,650
71,200
64,525
66,750
73,425
68,975
420,525
Total Collection
323,375
301,780
313,090
313,115
347,633
329,908
1,928,900
less payments
Purchases
234,000
257,400
241,800
292,500
245,700
280,800
1,552,200
Salaries and wages
40,000
45,000
50,000
65,000
55,000
52,000
307,000
Rent
5,000
5,000
5,000
5,000
5,000
5,000
30,000
Interest
7,500
7,500
15,000
Taxes
50,000
50,000
Capital investment
50,000
50,000
Total payments
286,500
307,400
296,800
420,000
305,700
387,800
2,004,200
Surplus/Deficit
36,875
(5,620)
16,290
(106,885)
41,933
(57,893)
(75,300)
Add opening Balance
100,000
136,875
131,255
147,545
40,660
82,593
100,000
Closing Balance
136,875
131,255
147,545
40,660
82,593
24,700
24,700
Minimum cash balance
100,000
100,000
100,000
100,000
100,000
100,000
100,000
Additional borrowing
-
-
-
59,340
17,408
75,300
75,300
Borrowings will be
-
-
-
150,000
20,000
80,000
175,000
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