The Mason Corporation has a 30-day average collection period and wishes to maint

Question

The Mason Corporation has a 30-day average collection period and wishes to maintain a $5 million minimum cash balance. Based on this and the information below, answer below questions

Mason Corp Cash Budget in millions

Ending receivables

Net cash inflow

What is the ending receivables in the second quarter (Q2)?

$60 million

$80 million

$40 million

$90 million

What is net cash inflow in the third quarter (Q3)?

-$50 million

$-40 million

-$20 million

-$60 million

What is the cumulative surplus (deficit) in the fourth quarter (Q4)?

-$60 million

-$40 million

$10 million

$-20 million

q1 q2 q3 q4 Beginning receivables 120 sales 90 120 150 120 Cash collections

Ending receivables

Total cash collections Total cash disbursements (80) (160) (180) (160)

Net cash inflow

Beginning cash balance 5 Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit)

Explanation / Answer

1.What is the ending receivables in the second quarter

=40 million

2.What is net cash inflow in the third quarter

= -40 million

3. What is the cumulative surplus (deficit) in the fourth quarter= -20 million

Computed as following

Q1 Q2 Q3 Q4 Beginning receivable 120 30 40 50 Sales 90 120 150 120 Cash collection(beginning receivable+2/3 of sales (180) (110) (140) (130) Ending receivable 30 40 50 40 Total cash collection 180 110 140 130 Total cash disbursement (80) (160) (180) (160) Net cash inflow (100) (50) (40) (30) Beginning cash balance 5 105 55 15 Net cash inflow 100 (50) (40) (30) Ending cash balance 105 55 15 (15) Minimum cash balance (5) (5) (5) (5) Cumulative surplus or deficit 100 50 10 (20)

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