ACCT504 Case Study 3

| October 3, 2018

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 1,000

Cash
Increase (decrease) in Cash 3,300
Cash, beginning of year 2,900
Cash, end of year
5,900

?
Requirements

1. Prepare the Wang cash budget for 2014. Date the budget
simply “2014” and denote the beginning and ending cash balances as
“beginning” and “ending.” Assume the company expects 2014 to be the same
as 2013, but with the following changes:

a. In 2014, the company expects a 20% increase in collections
from customers and a 30% increase in purchases of inventory.
b. There will be no sales of investments in 2014.
c. Wang does not plan to issue stock in 2014.
d. Wang plans to end the year with a cash balance of $5,550.

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