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(Learning Objective 5: Construct and use a cash budget) Nathan Farmer, chief financial officer of Wang Appliance Store, is responsible for the company’s budgeting process. Farmer’s staff is preparing the Wang cash budget for 2014. A key input to the budgeting process is last year’s statement of cash flows, which follows (amounts in thousands):

   Wang Appliance Store

    Statement of Cash Flows


  (in thousands)

Cash Flows from Operating Activities

Collections from customers  $51,000

Interest Received  500

Purchase of inventory  (36,000)

Operating expenses   (10,200)

  Net cash provided by operating activities   5,300

Cash Flows from Investing Activities

  Purchase of equipment  (3,500)

  Purchase of investments   (500)

  Sale of investments  1,000

  Net cash used for investing activities  (3,000


Cash Flows from Financing Activities

  Payment of long term debt  (400)

  Issuance of Stock  2,000

  Payment of cash dividends  (500)

  Net cash provided by financing activities  1,000 


Increase (decrease) in Cash   3,300

Cash, beginning of year    2,900

Cash, end of year  5,900

â–¸ Requirements

  • 1. Prepare the Wang cash budget for 2014. Date the budget simply “2014” and denote the beginning and ending cash balances as “beginning” and “ending.” Assume the company expects 2014 to be the same as 2013, but with the following changes:
    • a. In 2014, the company expects a 20% increase in collections from customers and a 30% increase in purchases of inventory.
    • b. There will be no sales of investments in 2014.
    • c. Wang does not plan to issue stock in 2014.
    • d. Wang plans to end the year with a cash balance of $5,550.      

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