Homework Help is Here – Start Your Trial Now!
Business
Accounting
Varsity Supplies & Things have indicated an industry requirement to maintain a minimum cash balance of $162,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing. Based on the budget prepared, will the business be achieving this desired target? What are three (3) internal strategies that may be employed by management to improve the organization's monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared.

Varsity Supplies & Things have indicated an industry requirement to maintain a minimum cash balance of $162,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing. Based on the budget prepared, will the business be achieving this desired target? What are three (3) internal strategies that may be employed by management to improve the organization's monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
icon
Concept explainers
Question
Varsity Supplies & Things have indicated an industry requirement to maintain a minimum cash balance of $162,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing. Based on the budget prepared, will the business be achieving this desired target? What are three (3) internal strategies that may be employed by management to improve the organization's monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared.
Cash Sales Credit Sales Cash Purchases Credit Purchases Receipts Beginning balance Cash sales Collections from Credit sales: In the month of sale (55%) In the 1st month following the sale (35%) In the 2nd month following the sale (8%) Office space rental Office space deposit Sale of Motor Vehicles Sale of long-term bonds Interest on long-term bond Total Cash available Disbursements Cash Purchase Payment for Credit Purchase: In the month of purchase (85%) In the month following the purchase (15%) Furniture purchased Fixed Operating expenses Other Operating expenses Repayment of principal Interest paid thereon Wages and salaries Total disbursements Ending balance $ $ Varsity Supplies & Things Cash Budget January 171,475 $ 650,000 44,625 400,000 $ 171,475 343,200 210,000 38,400 450,000 $ 1,231,818 $ 18,743 44,625 $ 333,200 57,000 132,000 56,000 320,000 35,000 282,000 $ 1,259,825 $ (28,007) $ February 144,940 $ 700,000 30,400 480,000 (28,007) 144,940 369,600 227,500 48,000 48,000 48,000 150,000 1,008,033 $ 30,400 $ 399,840 60,000 140,000 132,000 56,000 282,000 1,100,240 $ (92,207) $ March 236,720 $ 800,000 55,100 540,000 (92,207) 236,720 422,400 245,000 52,000 48,000 75,000 55,100 $ 449,820 72,000 42,000 132,000 56,000 986,913 $ 3,346,978 282,000 1,088,920 $ Quarter 553,135 2,150,000 130,125 1,420,000 (102,007) $ 553,135 1,135,200 682,500 138,400 96,000 48,000 225,000 450,000 18,743 130,125 1,182,860 189,000 182,000 396,000 168,000 320,000 35,000 846,000 3,448,985 (102,007)
Transcribed Image Text:Cash Sales Credit Sales Cash Purchases Credit Purchases Receipts Beginning balance Cash sales Collections from Credit sales: In the month of sale (55%) In the 1st month following the sale (35%) In the 2nd month following the sale (8%) Office space rental Office space deposit Sale of Motor Vehicles Sale of long-term bonds Interest on long-term bond Total Cash available Disbursements Cash Purchase Payment for Credit Purchase: In the month of purchase (85%) In the month following the purchase (15%) Furniture purchased Fixed Operating expenses Other Operating expenses Repayment of principal Interest paid thereon Wages and salaries Total disbursements Ending balance $ $ Varsity Supplies & Things Cash Budget January 171,475 $ 650,000 44,625 400,000 $ 171,475 343,200 210,000 38,400 450,000 $ 1,231,818 $ 18,743 44,625 $ 333,200 57,000 132,000 56,000 320,000 35,000 282,000 $ 1,259,825 $ (28,007) $ February 144,940 $ 700,000 30,400 480,000 (28,007) 144,940 369,600 227,500 48,000 48,000 48,000 150,000 1,008,033 $ 30,400 $ 399,840 60,000 140,000 132,000 56,000 282,000 1,100,240 $ (92,207) $ March 236,720 $ 800,000 55,100 540,000 (92,207) 236,720 422,400 245,000 52,000 48,000 75,000 55,100 $ 449,820 72,000 42,000 132,000 56,000 986,913 $ 3,346,978 282,000 1,088,920 $ Quarter 553,135 2,150,000 130,125 1,420,000 (102,007) $ 553,135 1,135,200 682,500 138,400 96,000 48,000 225,000 450,000 18,743 130,125 1,182,860 189,000 182,000 396,000 168,000 320,000 35,000 846,000 3,448,985 (102,007)
Varsity Supplies & Things is a family-owned store. The business is now approaching the end of the year and is desirous of identifying its expected cash inflows and outflows for the first quarter of the new year. You are the management accountant of the entity and have been tasked to prepare the cash budget for the business for the quarter ending March 31, 2023. The following data is available: (i) (ii) (iii) (iv) (v) (vi) Extracts from the sales and purchases budgets are as follows: Month Sales 2022 - 2023 On Account $480,000 $600,000 $650,000 $700,000 $800,000 November 2022 December 2022 January 2023 February 2023 March 2023 (x) Cash Sales $142,100 $165,500 $171,475 $144,940 $236,720 Cash Purchases $25,800 $44,625 $30,400 $55,100 55% in the month of sale 35% in the first month following the sale 8% in the second month following the sale The remaining 2% is expected to be uncollectible Purchases On Account $345,000 An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90: Continued. $380,000 $400,000 $480,000 $540,000 Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60: 85% in the month in which the inventory is purchased 15% in the following month The management of Varsity Supplies & Things has negotiated with a tenant to sublet office space to her beginning February 1. The rental is expected to be $576,000 per annum. The first month's rent along with one month's safety deposit is expected to be collected on February 1. Thereafter, monthly rental income becomes due at the beginning of each month. Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in February. The manager has made arrangement with the suppliers to make a cash deposit of 40% upon signing of the agreement in February. The balance will be settled in five (5) equal monthly instalments beginning March of 2023. The management of Varsity Supplies & Things is in the process of upgrading its fleet of motor vehicles. During February the business expects to sell an old delivery motor van that cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motor van at that time is expected to be $375,000. The employee will be allowed to pay a deposit equal to 50% of the selling price in February; the balance will be settled in two equal amounts in March & April of 2023. (vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $2,088,000 per annum, which include depreciation on non-current assets of $504,000 per annum and are expected to be settled monthly. (viii) Other operating expenses which accrue evenly throughout the year are expected to be $672,000 per annum and will be settled monthly. (ix) A long-term bond purchased by Varsity Supplies & Things two (2) years ago, with a face value of $450,000 will mature on January 15, 2023. To meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date semi-annual interest computed at a rate of 8%% per annum is also expected to be collected As part of its investing activities, the management of Varsity Supplies & Things has just concluded an expansion project relating to the business's storage facilities. The project required capital outlay of $1,600,000 and was funded by a loan from a family member, who is a silent partner in the business. $320,000 of the principal along with interest of $35,000 will become due and payable on January 25, 2023. (xi) Wages and salaries are expected to be $3,384,000 per annum and will be paid monthly. (xii) The cash balance on March 31, 2023, is expected to be an overdraft of $248,000
Transcribed Image Text:Varsity Supplies & Things is a family-owned store. The business is now approaching the end of the year and is desirous of identifying its expected cash inflows and outflows for the first quarter of the new year. You are the management accountant of the entity and have been tasked to prepare the cash budget for the business for the quarter ending March 31, 2023. The following data is available: (i) (ii) (iii) (iv) (v) (vi) Extracts from the sales and purchases budgets are as follows: Month Sales 2022 - 2023 On Account $480,000 $600,000 $650,000 $700,000 $800,000 November 2022 December 2022 January 2023 February 2023 March 2023 (x) Cash Sales $142,100 $165,500 $171,475 $144,940 $236,720 Cash Purchases $25,800 $44,625 $30,400 $55,100 55% in the month of sale 35% in the first month following the sale 8% in the second month following the sale The remaining 2% is expected to be uncollectible Purchases On Account $345,000 An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 4/30, n90: Continued. $380,000 $400,000 $480,000 $540,000 Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60: 85% in the month in which the inventory is purchased 15% in the following month The management of Varsity Supplies & Things has negotiated with a tenant to sublet office space to her beginning February 1. The rental is expected to be $576,000 per annum. The first month's rent along with one month's safety deposit is expected to be collected on February 1. Thereafter, monthly rental income becomes due at the beginning of each month. Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in February. The manager has made arrangement with the suppliers to make a cash deposit of 40% upon signing of the agreement in February. The balance will be settled in five (5) equal monthly instalments beginning March of 2023. The management of Varsity Supplies & Things is in the process of upgrading its fleet of motor vehicles. During February the business expects to sell an old delivery motor van that cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on this motor van at that time is expected to be $375,000. The employee will be allowed to pay a deposit equal to 50% of the selling price in February; the balance will be settled in two equal amounts in March & April of 2023. (vii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be $2,088,000 per annum, which include depreciation on non-current assets of $504,000 per annum and are expected to be settled monthly. (viii) Other operating expenses which accrue evenly throughout the year are expected to be $672,000 per annum and will be settled monthly. (ix) A long-term bond purchased by Varsity Supplies & Things two (2) years ago, with a face value of $450,000 will mature on January 15, 2023. To meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date semi-annual interest computed at a rate of 8%% per annum is also expected to be collected As part of its investing activities, the management of Varsity Supplies & Things has just concluded an expansion project relating to the business's storage facilities. The project required capital outlay of $1,600,000 and was funded by a loan from a family member, who is a silent partner in the business. $320,000 of the principal along with interest of $35,000 will become due and payable on January 25, 2023. (xi) Wages and salaries are expected to be $3,384,000 per annum and will be paid monthly. (xii) The cash balance on March 31, 2023, is expected to be an overdraft of $248,000
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS