Requirements: 1. Prepare the budgeted balance sheet for FairviewMedical Supply at April 30. Show separate computations for cash, inventory, and owners' equity balances. 2. Prepare the combined cash budget for April. 3. Suppose FairviewMedical Supply has become aware of more efficient (and more expensive) equipment than it budgeted for purchase in April. What is the total amount of cash available for equipment purchases in April, before financing, if the minimum desired ending cash balance is $19,000? (For this requirement, disregard the $42,700 initially budgeted for equipment purchases.) 4. Before granting a loan to FairviewMedical Supply, First American Bank asks for a sensitivity analysis assuming that April sales are only $60,667 rather than the $91,000 originally budgeted. (While the cost of goods sold will change, assume that purchases, depreciation, and the other operating expenses will remain the same as in the earlier requirements.) a. Prepare a revised budgeted balance sheet for FairviewMedical Supply, showing separate computations for cash, inventory, and owners' equity balances. b. Suppose FairviewMedical Supply has a minimum desired cash balance of $20,000. Will the company need to borrow cash in April?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Fairview Medical Supply has applied for a loan. First American Bank has requested a budgeted balance sheet as of April 30, and a combined cash budget for April. As Fairview Medical Supply's controller, you have assembled the following information:

a.	March 31 equipment balance, $52,700; accumulated depreciation, $41,100.
b.	April capital expenditures of $42,700 budgeted for cash purchase of equipment.
c.	April depreciation expense, $500.
d.	Cost of goods sold, 60% of sales.
e.	Other April operating expenses, including income tax, total $13,400, 30% of which will be paid in cash and the remainder accrued at April 30.
f.	March 31 owners' equity, $93,600.
g.	March 31 cash balance, $40,100.
h.	April budgeted sales, $91,000, 70% of which is for cash. Of the remaining 30%, half will be collected in April and half in May.
i.	April cash collections on March sales, $29,200.
j.	April cash payments of March 31 liabilities incurred for March purchases of inventory, $17,100.
k.	March 31 inventory balance,$29,800.
l.	April purchases of inventory, $10,100 for cash and $36,800 on credit. Half of the credit purchases will be paid in April and half in May.

Requirements:

Prepare the budgeted balance sheet for FairviewMedical Supply at April 30. Show separate computations for cash, inventory, and owners' equity balances.

Prepare the combined cash budget for April.

Suppose FairviewMedical Supply has become aware of more efficient (and more expensive) equipment than it budgeted for purchase in April. What is the total amount of cash available for equipment purchases in April, before financing, if the minimum desired ending cash balance is $19,000? (For this requirement, disregard the

$42,700 initially budgeted for equipment purchases.)

Before granting a loan to FairviewMedical Supply, First American Bank asks for a sensitivity analysis assuming that April sales are only $60,667 rather than the $91,000 originally budgeted. (While the cost of goods sold will change, assume that purchases, depreciation, and the other operating expenses will remain the same as in the earlier requirements.)

a.	Prepare a revised budgeted balance sheet for FairviewMedical Supply, showing separate computations for cash, inventory, and owners' equity balances.
b.	Suppose FairviewMedical Supply has a minimum desired cash balance of $20,000. Will the company need to borrow cash in April?

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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