Budgeting Paper 15


O’Hara Corporation has the opportunity to purchase land adjacent to its existing location for $200,000. If purchased, the company would also spend $20,000 to level the property to make it usable for building construction. Management believes there is an 80% probability it will have enough cash to purchase the land outright and a 20% chance it will need to borrow the $200,000. The dollar amount O’Hara should show on its initial capital budget for the purchase of this land is


Taylor Incorporated prepares cash budgets each month, including a forecast of monthly cash collections. Collections are expected to be 65% in the month of sale, 25% in the first month following the sale, and 10% in the second month following the sale. Sales for the first 6 months of the year were as follows. January $185,000 April $208,000 February $196,000 May $210,000 March $216,000 June $232,000 The total cash collected during the month of May is


Holland Company is in the process of projecting its cash position at the end of the second quarter. Shown below is pertinent information from Holland’s records.
Cash balance at end of 1st quarter ..$ 36,000
Cash collections from customers for 2nd quarter ..1,300,000
Accounts payable at end of 1st quarter ..100,000
Accounts payable at end of 2nd quarter ..75,000
All 2nd quarter costs and expenses (accrual basis) ..1,200,000
Depreciation (accrued expense included above) ..60,000
Purchases of equipment (for cash) ..50,000
Gain on sale of asset (for cash) ..5,000
Net book value of asset sold ..35,000
Repayment of notes payable ..66,000
From the data above, determine Holland’s projected cash balance at the end of the second quarter.


Steers Company has just completed its prospective financial statements for the coming year. Relevant information is summarized below:
Projected net income $100,000
Anticipated capital expenditures 50,000
Increase in working capital 25,000
Depreciation expense 15,000
From the information provided above, the increase in Steers’ cash account for the coming year will be .


Which one of the following best represents a factor that should be considered for mediumand long-term cash forecasting?


Ward Corporation’s current year-end sales totaled $240 million, and its ending cash balance was $20 million. Ward anticipates its sales for the upcoming year will be $260 million. On average, 10% of a year’s sales will be collected during the following year. Assume Ward has no uncollectible accounts. Ward also anticipates cash expenses of $240 million and depreciation of $5 million. During the next year, Ward intends to spend $30 million cash for capital improvements. If Ward’s policy is to have a minimum of $10 million cash available at the beginning of each year, its budgeted cash flow projections indicate that it will need outside financing of


As part of the master budget process, a merchandising company begins to prepare the cash budget for the same period. Which of the following additional information will be most useful to management in preparing this budget?


A firm develops an annual cash budget in order to


Myers Company uses a calendar year and prepares a cash budget for each month of the year. Which one of the following items should be considered when developing July’s cash budget?


Worley, Inc., a publicly traded company, operates a seasonal business with high production in the month of November for which suppliers are paid in December in order to take advantage of a purchase discount. High sales typically occur in December, with payment received by Worley in January. Worley’s abbreviated December cash budget is shown below.
Cash balance, beginning $875,000
Cash receipts 200,000
Cash disbursements Payments to suppliers 520,000
Other operating costs 500,000
Dividends 80,000
Cash balance, ending $ (25,000)
The company is considering alternatives to provide the company with the desired ending cash balance of $75,000 in December. The best action(s) for Worley would be to


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