ACCT 504 Case Study 3
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(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 year6,300
▸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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