Case synopsis:
Person B found corporation W 20 years before. It was started as a mail order company and grew rapidly in recent years. As there is an extensive geographical dispersion of customers of the company, it presently employs a lockbox system with the collection place in City S.
Person H, the treasurer of the company, is assessing the present cash collection policies. He identifies the number of payments to be handled by the lockbox service and the company’s present policy is to invest the payments in the short-term marketable securities. Due to this, the proceeds are wire-transferred to the headquarters of the corporation in order to meet payroll.
Person H was approached by the third national bank on the possibility of establishing a banking system for Corporation W.
Characters in the case:
- Corporation W
- Person H
- Person B
Adequate information:
- The third national bank would accept every lockbox center’s regular payment through ACH (Automated Clearinghouse).
- The transferred funds through ACH would not be available for utilization for a single day.
To calculate: The overall net cash flow from the present lockbox system in order to meet the payroll.
Answer:
The amount available or the net cash flow is $10,794,781.97.
Want to see the full answer?
Check out a sample textbook solutionChapter 19 Solutions
Fundamentals of Corporate Finance
- One objective of managing a firm's cash is to process its cash receipts as quickly as possible. Banks provide many services to process incoming payments quickly and efficiently. Consider the case of Sandberg Industries: Sandberg Industries owns an office building that it fents to Graham Company. Sandberg Industries and Graham have an agreement in which Graham's bank transfers the monthly rent automatically to Sandberg Industries' account. Which cash management technique is Sandberg using? Concentration banking A preauthorized check A lockbox arrangementarrow_forwardHi, Please help with attached question, thanks kindly.arrow_forwardThe controller of the Red Wing Corporation is in the process of preparing the company's 2021 financial statements. She is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the balance sheet. The following items are being considered ok ices a. Balances in the company's accounts at the First National Bank; checking $13,900, savings $22,500 b. Undeposited customer checks of $5,600. c. Currency and coins on hand of $620. d. Savings account at the East Bay Bank with a balance of $440,000. This account is being used to accumulate cash for future plant expansion (in 2023). e. $28,000 in a checking account at the East Bay Bank. The balance in the account represents a 20% compensating balance for a $140,000 loan with the bank. Red Wing may not withdraw the funds until the loan is due in 2024. f. U.S. Treasury bills; 2-month maturity bills totaling $19,000, and 7-month bills totaling $24.000. Required: 1. Determine the correct balance of…arrow_forward
- The controller of the Red Wing Corporation is in the process of preparing the company's 2021 financial statements. She is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the balance sheet. The following items are being considered ok ices a. Balances in the company's accounts at the First National Bank; checking $13,900, savings $22,500 b. Undeposited customer checks of $5,600. c. Currency and coins on hand of $620. d. Savings account at the East Bay Bank with a balance of $440,000. This account is being used to accumulate cash for future plant expansion (in 2023). e. $28,000 in a checking account at the East Bay Bank. The balance in the account represents a 20% compensating balance for a $140,000 loan with the bank. Red Wing may not withdraw the funds until the loan is due in 2024. f. U.S. Treasury bills; 2-month maturity bills totaling $19,000, and 7-month bills totaling $24.000. Required: 1. Determine the correct balance of…arrow_forward[Words Limit: Up to 300 words.] ABC Limited is a manufacturing firm with a workforce of more than 100 employees. Mr Peter has recently joined the firm as the account payable clerk. Miss Emma is the accounting department head, and she is concerned about the cash disbursement system. Therefore, she has asked Mr Peter to analyse the firm's cash disbursement system and identify the internal control weaknesses from the system. Following is the description of the cash disbursement system. In the temporary file, the account payable clerk receives the supplier's invoice and reconciles it with the purchase order. The accounts payable clerk records the purchase in the purchases journal from the clerk's computer terminal and records the liability by adding a record to accounts payable subsidiary ledger. The clerk then updates the inventory control and accounts payable control accounts in the general ledger. The purchases order and invoice are later filed in the department. Each day, the clerk…arrow_forwardRequired Information [The following information applies to the questions displayed below.] Harristown Hockey Club (HHC) maintains a petty cash fund for minor club expenditures. The petty cash custodian, Wayne Crosby, describes the events that occurred during the last two months: a. I established the fund by cashing a check from HHC for $310 made payable to me. b. Tom Canuck provided a $90 receipt for repairs to the club's computer, so I paid $90 cash to him. c. Kim Harra provided a receipt for $70 for various supplies she planned to use to decorate the arena later this year. I paid $70 cash to her. d. Trainer Jim bought some equipment that the club intends to use for the next few years. He gave me the receipt and I paid him $100. e. On the last day of the month, I prepared a summary of expenditures and requested the fund be replenished. I received and cashed a check from HHC for $260, placing the cash Into a locked cash box. f. Wendy Wignes provided receipts for supplies purchased for…arrow_forward
- Want answerarrow_forwardWeyman Z. Wannamaker is the chief financial officer of Cogburn Company. He prides himself on being able to manage the company’s cash resources to minimize the interest expense. Consequently, on the second business day of each month, Weyman pays down or draws cash on Cogburn’s revolving line of credit at First National Bank in accordance with his cash requirements forecast.You are the auditor. You find the information on this line of credit in the following table. You inquired at First National Bank and learned that Cogburn Company’s loan agreement specifies payment on the first day of each month for the interest due on the previous month’s outstanding balance at the rate of “prime plus 1.5 per cent.” The bank gave you a report that showed the prime rate of interest was 8.5 per cent for the first six months of the year and 8.0 per cent for the last six months. Check the following image for payable balances Required:a. Prepare an audit estimate of the amount of interest expense you…arrow_forwardGive me answerarrow_forward
- . Which one of the following best defines cash concentration? A. Combining all of a firm's receipts into one bank deposit B. Combining a week's worth of cash receipts into one bank deposit C. Combining cash from multiple banks into a firm's main bank accounts D. Using multiple lockboxes for collecting cash payments E. Combining a firm's bills so that disbursement checks are mailed only monthlyarrow_forwardMykayla Sanders was recently hired as the assistant treasurer of Merlin's Retail Outlet, a specialty chain store company that has nine retail stores concentrated in one metropolitan area. Among other things, the payment of all invoices is centralized in one of the departments Mykayla will manage. Her primary responsibility is to maintain the company's high credit rating by paying all bills when due and to take advantage of all cash discounts. Blake Hansen, the former assistant treasurer, who has been promoted to treasurer, is training Mykayla in her new duties. He instructs Mykayla that she is to continue the practice of preparing all checks "net of discount" and dating the checks the last day of the discount period. "But", Blake continues, "we always hold the checks at least 4 days beyond the discount period before mailing them. That way we get another 4 days of interest on our money. Most of our creditors need our business and don't complain. And, if they scream about our missing the…arrow_forwardBASE OFF OF THE INFORMATION, CAN SOMEONE HELP ME SET UP A T-TABLE? Sheridan Company is a very profitable small business. It has not, however, given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeeper. As a result, Bret Turrin handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations.The balance per the bank statement on October 31, 2020, was $17,920. Outstanding checks were No. 62 for $160.20, No. 183 for $191, No. 284 for $275.25, No. 862 for $211.40, No. 863 for $232.00, and No. 864 for $182.60. Included with the statement was a credit memorandum of $116.00 indicating the collection of a note receivable for Daisey Company by the bank on October 25. This memorandum has not been recorded by Daisey.The company’s ledger showed one Cash account with a balance of $21,910.00. The balance included undeposited cash on…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning