11 May IF THE COMPANY MUST MAINTAIN A MINIMUM CASH BALANCE OF $25,000, HOW MUCH MONEY MUST THE COMPANY BORROW IN JULY?
What is the primary tool for short-term financial
forecasting?
A) pro forma income statement
B) pro forma balance sheet
C) pro forma cash budget
D) capital budgeting
46) Which of the following items does NOT belong in a cash
budget?
A) rent
B) taxes
C) depreciation
D) wages and salaries
47) In what way does a cash budget provide management with
better information about financing requirements than a pro forma balance sheet?
A) A pro forma cash budget gives greater details about the
depreciation of fixed assets.
B) A pro forma cash budget not only delineates the
financing that is needed but it also pinpoints in greater detail when the
financing is needed.
C) A pro forma cash budget utilizes superior methods in
determining a firm’s income tax liability for the planned period.
D) A pro forma cash budget does not offer better
information to management regarding financing than a pro forma balance sheet.
48) The
balance sheet of the Emery Company is presented below:
Emery
Company Balance Sheet
March
31, 2010
(Millions
of Dollars)
Current assets
$18
Accounts
payable
$9
Fixed assets
38
Notes payable
0
Total
$56
Long-term
debt
15
Common equity
32
Total
$56
For the year ending March 31, 2010, Jackson had sales of
$58 million. The common stockholders receive all net earnings of the firm in
the form of cash dividends, leaving no funds from earnings available to the
firm for expansion (assume that depreciation expense is just equal to the cost
of replacing worn-out assets).
Construct a pro forma balance sheet for March 31, 2011 for
an expected level of sales of $75.4 million. Assume current assets and accounts
payable vary as a percent of sales, and fixed assets remain at the present
level. Use notes payable as discretionary financing.
49) The cash
budget for Parker Processed Meats, Inc. is given below for the fourth quarter
of 2010:
Parker Processed Meats, Inc.
Cash Budget for the Three Months Ending December 31, 2010
Cash receipts
Oct.
Nov.
Dec.
Total collections
$37,050
$48,075
$69,750
Cash disbursements:
Purchases
$45,780
$50,800
$54,250
Wages and salaries
$8,500
$8,500
$8,500
Other expenses
$4,025
$2,350
$975
Taxes
$16,350
Total disbursements
$54,000
$57,375
$78,165
The expected sales for the period are as follows:
Oct.: $116,000 Nov.: $127,000 Dec.: $95,000
The total depreciation expense for the period will be
$12,000.
An interest payment on
outstanding debt of $13,000 will be made in December. Using the information
given above, construct a pro forma income statement for the final quarter of
2010.
50) The balance sheet for the Long Drive Golf
Company on September 30, 2010 is presented below:
Long Drive Golf Company Balance Sheet
September 30,
2010
Cash
$528,000
Accounts payable
$1,568,000
Accounts receivable
1,216,000
Notes payable
752,000
Inventory
2,400,000
Total current liabilities
2,320,000
Fixed assets
5,632,000
Long-term debt
2,336,000
Common stock
3,200,000
Total assets
$9,776,000
Retained earnings
1,920,000
Total liabilities and stockholders equity
$9,776,000
The treasurer of the firm wants to issue $1,200,000 in
long-term bonds to be used as follows:
1. $240,000
to reduce accounts payable
2. $192,000
to retire notes payable
3. $128,000
to increase cash on hand
4. $640,000
to increase inventories
a. Assuming
that the loan is obtained, construct a pro forma balance sheet for December 31,
2010, for Long Drive Golf Company that reflects the use of the funds provided.
b. Was the liquidity of Long Drive Golf
Company improved by the loan?
51) The treasurer for Chic Man Clothing must
decide how much money the company needs to borrow in July. The balance sheet
for June 30, 2010 is presented below:
Chic Man Clothing
Balance Sheet
June
30, 2010
Cash
$87,000
Accounts
payable
$550,000
Marketable securities
123,000
Long-term debt
350,000
Accounts receivable
360,000
Common stock
130,000
Inventory
300,000
Retained earnings
270,000
Total current assets
870,000
Total
liabilities and stockholders equity
1,300,000
Fixed assets
430,000
Total assets
$1,300,000
The company expects sales of
$400,000 for July. The company has observed that 25% of its sales is for cash
and that the remaining 75% is collected in the following month. The company
plans to purchase $345,000 of new clothing. Usually 70% of purchases is for
cash and the remaining 30% of purchases is paid in the following month.
Salaries are $135,000 per month, lease payments are $35,000 per month, and
depreciation charges are $20,000 per month. The company plans to purchase a new
van for $60,000 in July and sell its marketable securities for $123,000. If the
company must maintain a minimum cash balance of $25,000, how much money must
the company borrow in July?
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