16) Slowinski Company is preparing its cash budget for the upcoming year. It anticipates the following
cash receipts and cash payments for the year:
Collections from customers $ 999,400
Operating expenses paid 360,000
Interest on investments 12,000
Proceeds from sale of machinery 45,000
Purchase of inventory 407,000
Payment of interest expense 14,000
Payment for land 75,000
Payment of long-term debt 23,000
Using the information above, prepare Slowinski’s cash budget for the upcoming year. The cash balance
at the beginning of the year is $46,400. The minimum cash balance according to management is
$100,000.
17) Nichols Co. has the following information for the second quarter of 2017:
Cash balance, March 31 $ 15,000
Sales for April; all cash 200,000
Sales for May; all cash 300,000
Sales for June; all cash 400,000
Cost of Goods Sold is 75% of Sales; all cash
Operating expenses is 10% of Sales; all cash
Purchase a new computer in June with cash 65,000
Interest expense is paid in May 40,000
Income taxes paid:
April 9,000
May 1,500
June 18,000
The minimum cash balance for any month is $10,000.
Prepare a cash budget for each month in the second quarter of 2017, showing any excess cash or any
financing needed. Any interest on the financing will be deferred until the fiscal year end in December.
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18) Mary’s Dairy has the following information available for the preparation of the cash budget for the
second quarter:
Cash balance, March 31 $ 15,000
Sales for April; all cash 220,000
Sales for May; all cash 330,000
Sales for June; all cash 440,000
Cost of Goods Sold is 80% of Sales; all cash
Operating expenses is 8% of Sales; all cash
Interest expense is paid in June 40,000
Income tax rate is 30%
The minimum cash balance for any month is $10,000.
Prepare a cash budget for each month in the second quarter for this company. No additional equipment
will be purchased this quarter.
6 Learning Objective 4-6
1) Because cash equivalents are less liquid than cash, they cannot be reported along with cash.
2) Most companies have numerous bank accounts, but they usually combine all cash amounts into a
single total called “Cash and Cash Equivalents.”
3) Cash and cash equivalents include accounts receivable expected to be collected within 90 days or less.
4) Any restricted amount of cash should be separately disclosed as such on the balance sheet.
5) A compensating balance agreement requires a borrower to maintain a maximum balance in a
checking account at all times.
6) A compensating balance maintained for a loan increases the actual interest rate on a loan.
7) Which of the following statements regarding cash equivalents is INCORRECT?
A) Cash equivalents are sufficiently similar to cash and thus can be reported along with cash on the
balance sheet.
B) Cash equivalents include high-grade U.S. or foreign government securities that are very close to
maturity (three months or less at the time of purchase).
C) Most companies include additional information about cash and cash equivalents in the footnotes to
their financial statements.
D) Because cash equivalents are less liquid than cash, they must be reported separately from the Cash
account.
8) Cash equivalents include:
A) certificates of deposit.
B) restricted amounts of cash.
C) compensating balances.
D) high-grade U.S. or foreign government securities that are very close to maturity (three months or less
from the balance sheet date).
9) When reporting cash on the balance sheet, companies:
A) show each bank account separately.
B) combine cash with accounts receivable.
C) include any restricted amounts.
D) combine cash and cash equivalents.
10) Which of the following statements regarding restricted amounts of cash is CORRECT?
A) The Cash balance includes amounts that are restricted.
B) The minimum balance, under a compensating balance agreement, is the same as cash.
C) None of the Cash balance is restricted in any way.
D) Restricted amounts of cash need to be separately disclosed as such on the statement of stockholders’
equity.
11) The Nichols Company borrowed $32,000 from the bank and agreed to keep $3000 on deposit at all
times. The stated rate of interest on the loan is 9%. What is the real rate of interest?
A) 9%
B) 9.4%
C) 9.9%
D) 10.3%
12) Lori’s Company has the following items: cash in a checking account, $4000; cash in a savings
account, $7000; high-grade government securities due in one month (purchased last month), $3556;
accounts receivable, $3,000; cash in a compensating balance agreement, $3,200. How much should
appear as Cash and Cash Equivalents on the balance sheet?
A) $7000
B) $14,556
C) $17,556
D) $17,856
13) Jim’s Company has the following items: cash in a checking account, $3000; cash in a savings account,
$8000; high-grade government securities due in one month (purchased last month), $3596; accounts
receivable, $3500; cash pledged as collateral for a loan, $11,700. How much should appear as Restricted
Cash on the balance sheet?
A) $11,000
B) $11,700
C) $14,500
D) $3596
14) Cash and cash equivalents do NOT include:
A) time deposits.
B) petty cash.
C) bank checking account.
D) high-grade U.S. government securities maturing in 5 years.
15) Gia Company has the following information available:
Cash pledged as collateral
Cash used for compensating balance for short-term loan
Cash used for compensating balance for long-term loan
Cash in checking account
What is the amount of Cash to be listed on the balance sheet?
A) $0
B) $300,000
C) $3,800,000
D) $4,800,000
16) Carrie Heffernan, Inc., has the following assets at the end of the year:
Petty cash fund
$1,000
Cash in checking account
13,000
Time deposits
12,000
Accounts Receivable
40,000
Short-Term Investments
22,000
Investments in high-grade government
securities, maturing in 90 days (at time of
purchase)
14,000
Cash restricted under a compensating balance
agreement on a short-term loan
100,000
Prepaid Rent
20,000
Supplies
12,000
Prepare the current assets section of the balance sheet for this company.
Cash and Cash Equivalents*
Restricted Cash
100,000
Short-Term Investments
22,000
Accounts Receivable
40,000
Prepaid Rent
20,000
Supplies
12,000
17) Jerry’s Company is looking at various financing agreements. New Credit Union has agreed to loan
the company $500,000 at 8% interest. Happy Bank has agreed to loan the company $500,000 at an
interest rate of 6%. This is the lowest interest rate the company has been offered. However, as a
condition to the loan, the company must maintain a compensating balance amount equal to 20% of the
loan.
Required:
1. Determine the company’s actual (effective) interest rate on the bank loan.
2. Which loan has the lowest interest cost?