Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

EIN 5359 Industrial Financial Decisions Fall 2017 Exam II December 8, 2017 (10)

ID: 2804241 • Letter: E

Question

EIN 5359 Industrial Financial Decisions Fall 2017 Exam II December 8, 2017 (10) la. Given the information that follows, prepare a cash budget for the XYZ Store for the first six months of 2017. All prices and costs remain constant. Sales are 89% for credit and 1% for cash. With respect to credit sales, 45% are collected in the month after the sale, 30% in the second month, and 25% in the third. Bad-debt losses are insignificant. Sales, actual and estimated, are (* for actual sales): October 2016 $270,000* March 2017 $330,000 November 2016 340,000* April 2017 310,000 December 2016 320,000* May 2017 375,000 January 2017 290,000 June 2017 315,000 February 2017 300,000 July 2017 360,000 Merchandises are purchased one month before the anticipated sales at 78% (COGS), Assume all purchases arrived in the same month of ordering, and the company will pay the purchase exactly 1 month after placing the order. Wages and salaries are: January 2017 $40,000 April 2017 $60,000 February 2017 45,000 May 2017 55,000 March 2017 50,000 June 2017 52,000 Rent is $5,000 a month. Interest of $7,500 is due on the last day of each calendar quarter, and no quarterly cash dividends are planned. A tax prepayment of $50,000 for 2017 income is due in April. A capital investment of $50,000 is planned in June, to be paid for then. The company has a cash balance of $100,000 at December 31, 2016, which is the minimum desired level for cash. Funds can be borrowed in multiples of $10,000. (Ignore interest on such borrowings.) (5) 1b. Use the cash budget worked out in Part (a) and the following additional information to prepare a forecast income statement for the first half of 2017 for the XYZ Store. (Note that the store maintains a safety stock of inventory.) Inventory on 12/31/16 was $180,000. Depreciation is taken on a straight-line basis on $240,000 of assets with an average remaining life of 10 years and no salvage value. The tax rate is 34 percent. (5) le. Given the following information and that contained in Parts (a) and (b), construct a forecast balance sheet as of June 30, 2017, for the XYZ Store.

Explanation / Answer

10.1.a. Statement of cash budget:

Jan

Feb

Mar

April

May

June

Total

Total Sales

          290,000

          300,000

          330,000

            310,000

          375,000

                315,000

            1,920,000

Credit Sales

          258,100

          267,000

          293,700

            275,900

          333,750

                280,350

            1,708,800

Cash Collection

Cash sales

             31,900

             33,000

             36,300

              34,100

             41,250

                  34,650

                211,200

45%

          116,145

          120,150

          132,165

            124,155

          150,188

                126,158

                768,960

30%

             99,680

             77,430

             80,100

              88,110

             82,770

                100,125

                528,215

25%

             75,650

             71,200

             64,525

              66,750

             73,425

                  68,975

                420,525

Total Collection

          323,375

          301,780

          313,090

            313,115

          347,633

                329,908

            1,928,900

less payments

Purchases

          234,000

          257,400

          241,800

            292,500

          245,700

                280,800

            1,552,200

Salaries and wages

             40,000

             45,000

             50,000

              65,000

             55,000

                  52,000

                307,000

Rent

               5,000

               5,000

               5,000

                5,000

               5,000

                     5,000

                  30,000

Interest

               7,500

                7,500

                  15,000

Taxes

              50,000

                  50,000

Capital investment

                  50,000

                  50,000

Total payments

          286,500

          307,400

          296,800

            420,000

          305,700

                387,800

            2,004,200

Surplus/Deficit

             36,875

             (5,620)

             16,290

         (106,885)

             41,933

                (57,893)

                (75,300)

Add opening Balance

          100,000

          136,875

          131,255

            147,545

             40,660

                  82,593

                100,000

Closing Balance

          136,875

          131,255

          147,545

              40,660

             82,593

                  24,700

                  24,700

Minimum cash balance

          100,000

          100,000

          100,000

            100,000

          100,000

                100,000

                100,000

Additional borrowing

                      -  

                      -  

                      -  

              59,340

             17,408

                  75,300

                  75,300

Borrowings will be

                      -  

                      -  

                      -  

            150,000

             20,000

                  80,000

                175,000

5.1.b. Income statement for the first half year 2017:

Sales

          1,920,000

less cost of goods sold

          1,497,600

Gross profit

              422,400

less operating expenses

Salaries and wages

          307,000

Rent

30,000

Depreciation

12,000

Total operating expenses

              349,000

EBIT

                73,400

less interest

                15,000

Earnings before taxes

                58,400

less taxes

                19,856

Net income

                38,544

Jan

Feb

Mar

April

May

June

Total

Total Sales

          290,000

          300,000

          330,000

            310,000

          375,000

                315,000

            1,920,000

Credit Sales

          258,100

          267,000

          293,700

            275,900

          333,750

                280,350

            1,708,800

Cash Collection

Cash sales

             31,900

             33,000

             36,300

              34,100

             41,250

                  34,650

                211,200

45%

          116,145

          120,150

          132,165

            124,155

          150,188

                126,158

                768,960

30%

             99,680

             77,430

             80,100

              88,110

             82,770

                100,125

                528,215

25%

             75,650

             71,200

             64,525

              66,750

             73,425

                  68,975

                420,525

Total Collection

          323,375

          301,780

          313,090

            313,115

          347,633

                329,908

            1,928,900

less payments

Purchases

          234,000

          257,400

          241,800

            292,500

          245,700

                280,800

            1,552,200

Salaries and wages

             40,000

             45,000

             50,000

              65,000

             55,000

                  52,000

                307,000

Rent

               5,000

               5,000

               5,000

                5,000

               5,000

                     5,000

                  30,000

Interest

               7,500

                7,500

                  15,000

Taxes

              50,000

                  50,000

Capital investment

                  50,000

                  50,000

Total payments

          286,500

          307,400

          296,800

            420,000

          305,700

                387,800

            2,004,200

Surplus/Deficit

             36,875

             (5,620)

             16,290

         (106,885)

             41,933

                (57,893)

                (75,300)

Add opening Balance

          100,000

          136,875

          131,255

            147,545

             40,660

                  82,593

                100,000

Closing Balance

          136,875

          131,255

          147,545

              40,660

             82,593

                  24,700

                  24,700

Minimum cash balance

          100,000

          100,000

          100,000

            100,000

          100,000

                100,000

                100,000

Additional borrowing

                      -  

                      -  

                      -  

              59,340

             17,408

                  75,300

                  75,300

Borrowings will be

                      -  

                      -  

                      -  

            150,000

             20,000

                  80,000

                175,000