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

   Wang Appliance Store

    Statement of Cash Flows



Cash Flows from Operating Activities

Collections fromcustomers $51,000

InterestReceived 500

Purchase ofinventory (36,000)

Operatingexpenses  (10,200)

  Net cash provided by operatingactivities   5,300

Cash Flows from Investing Activities

  Purchaseof equipment (3,500)

  Purchaseof investments   (500)

  Saleof investments 1,000

  Netcash used for investing activities  (3,000 ) 


Cash Flows from Financing Activities

  Paymentof long term debt (400)

  Issuanceof Stock 2,000

  Paymentof cash dividends (500)

  Netcash provided by financing activities  1,000 


Increase (decrease) in Cash   3,300

Cash, beginning of year    2,900

Cash, end of year 5,900


  • 1. Prepare the Wang cash budget for 2014. Date the budgetsimply “2014” and denote the beginning and ending cash balances as“beginning” and “ending.” Assume the company expects 2014 to be the sameas 2013, but with the following changes:
    • a. In 2014, the company expects a 20% increase in collectionsfrom 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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