ACCT 505 Course Project 1 https://homeworklance.com/downloads/acct-505-course-project-1/
COURSE PROJECT 1 INSTRUCTIONS You have just been contracted as a budget consultant by LBJ Company, a distributor of bracelets to various retail outlets across the country. The company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.
You have decided to prepare a cash budget for the upcoming fourth quarter in order to show management the benefits that can be gained from proper cash planning.You have worked with accounting and other areas to gather the information assembled below.
The company sells many styles of bracelets, but all are sold for the same $10 price. Actual sales of …show more content…
The company plans to purchase $22,000 in new equipment during October and $50,000 in new equipment during November; both purchases will be for cash. The company declares dividends of $20,000 each quarter, payable in the first month of the following quarter.
Other relevant data is given below:
Cash balance as of September 30 $74,000
Inventory balance as of September 30 $112,000
Merchandise purchases for September $200,000
The company maintains a minimum cash balance of at least $50,000 at the end of each month. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.
The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.
Prepare a cash budget for the three-month period ending
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This is something that any company need to pay off loans to keep from paying extra interest on debts.
After reading this spreadsheet budget of Chester & Wayne food distribution company. Since the CEO, Mr. Chester, asked this writer to help prepare cash-flow material from temporary control expanse from Sept. 30 for the last three months of this 12 months. Chosen costs:
This budget can assist the company in determining when more cash resources are needed, and if excess cash is available for future investing or saving (Parry, 2006). The company can plan accordingly over a period of time if a cash budget is created and utilized efficiently. Without a cash budget, the company will flounder in times of economic stress, and have excess cash wasting interest by lying about. It is a plan, and just like any other plan like marketing or sales plans, it is best used before a crisis or challenge occurs.
Recalling from the previous week, there was what may have been thought of as the daunting, yet interesting assignment given, the project. With that assignment, came the challenge of choosing a subject that could be narrowed down making it easier to work with, in conjunction with certain steps in the process that could be followed such as, eliminating procrastination and tools that could be utilized that would assist in the efforts of making the project successful. Over multiple days and possibly some restless nights of the rolodex of the mind flipping from one card to another, the project seemed to start to come together or in the very least grow from essentially approaching the starting line to actually being at the starting line. The
Resort Co. (“the Company”) is a privately held company that operates luxury hotels. On December 31st the Company originally held a loan of $432 million (“the Original Debt”) with two different banks. The loan was partially held in bank A ($129.6 million) and with bank B ($302.4 million). There were $3 million in issuance costs still allocated to the loan $900,000 bank A and $2.1 million to bank B.
Most entities and organization create budgets as a guide for controlling its spending, prediction of profit, and it expenditure as they progress toward a set goal. Budget involves pulling resources together to achieve a specific goal. According to Gapenski (2006), budgeting is an offshoot in a planning process. A basic managerial accounting tool use in holding planning and control functions together is referred to as set of budgets (p. 255). One major setback manager or budget developer encounter is trying to design a future, a process that cannot be created with the precision just right. This article highlights some financial management
The budgeted collections accounts receivable from May and June are $802,800. The company collects the sales on account, 60% the first month and 38% the next month. In this situation, substantial amount of cash inflow is receivable, compared with the rate of 80% that are Accounts payable in the first month for materials
They can start to repay some of the principle as soon as possible to reduce the interest payments. This will help reduce the amount of interest paid in total (Exhibit 2). While this solution does not eliminate the problem of still being unable to repay the full loan, they are able to lessen their cash shortage. The assumptions I used for this budget was that approximately $500,000 on hand is all they will need from month to month. I also assumed the $500,000 on hand is not earning interest which would also help generate cash which would help in repayment. The ending cash on hand for October is $710,000 to help cover for November which has a larger amount of cash outflows then cash inflows. This on it's own would bring their cash shortage to $319,500 a savings of $12,000. Still this along with the removal of the $150,000 in dividends will still not eliminate their cash shortage. With the two combined, they still will have a shortage of $169,500. (Exhibit 3)