Waterway Industries is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets andsales. Waterway Industries's local banker has indicated that the company cannot increase its borrowing for the foreseeable future.Waterway Industries's suppliers are demanding payment for goods acquired within 30 days of the invoice date, but WaterwayIndustries's customers are slow in paying for their purchases (60-90 days). As a result, Waterway Industries has a cash flow problem.Waterway Industries needs $147,100 to cover next Friday's payroll. Its balance of outstanding accounts receivable totals $767,100.To alleviate this cash crunch, the company sells $164,200 of its receivables.Record the entry that Waterway Industries would make. (Assume a 2% service charge.) (Credit account titles are automatically indentedwhen amount is entered. Do not indent manually.)Account Titles and ExplanationDebitCredit

Journal Entry is the primary step in recording the transactions in the books of accounts.The…

Answered: Waterway Industries is a growing…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 2P

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Vaughn Manufacturing is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Vaughn Manufacturing’s local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Vaughn Manufacturing’s suppliers are demanding payment for goods acquired within 30 days of the invoice date, but Vaughn Manufacturing’s customers are slow in paying for their purchases (60–90 days). As a result, Vaughn Manufacturing has a cash flow problem.Vaughn Manufacturing needs $144,200 to cover next Friday’s payroll. Its balance of outstanding accounts receivable totals $838,100. To alleviate this cash crunch, the company sells $161,000 of its receivables.Record the entry that Vaughn Manufacturing would make. (Assume a 2% service charge.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.) ACCOUNT TITLES AND EXPLANATION account title debit…
The Berti Corporation is trying to decide whether to switch to a bank that will accommodate electronic funds transfers from Berti 's customers. Berti 's financial manager believes the new system would decrease its collection float by as much as five days. The new bank would require a compensating balance of $4,000,000, whereas its present bank has no compensating balance requirement. Additionally, the new bank will require a fixed annual fee of $200,000 each year to service the account. Berti 's average daily collections are $2,000,000, and it can earn 6% on its short-term investments. Should Berti make the switch? (Assume the compensating balance at the new bank will be deposited in a non-interest earning account.)
A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by three days by reducing processing, mail, and clearing float. The firm has total annual outlays of $15,000,000 and currently pays 9 percent for its negotiated financing. 1. Calculate the cash conversion cycle before the lockbox system? 2. Calculate the cash conversion cycle after the lockbox system? 3. Calculate the savings in financing costs from the lockbox system? Q2. The following data applies to a company. 1. The minimum cash balance is $8,000. 2. The variance of daily cash flows is 4,000,000, equivalent to a standard deviation of $2,000 per day. 3. The transaction cost for buying or selling securities is $50. The interest rate is 0.025 per cent per day. You are required to formulate…
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