ACCT504 Case Study 3 – Wang Appliance Store – Cash Budget

ACCT504 Case Study 3 -Wang Appliance Store – Cash Budget

(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

? 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 10%
increase in collections from customers and a 25% 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 $7,000.
2.
Prepare a brief analysis of the budget.
What would you suggest to increase the cash available before new
financing?