Cash Budgeting
The sales budget for your company in the coming year is based on a quarterly growth rate of 10 percent, with the first-quarter sales projection at $165 million. In addition to this basic trend, the seasonal adjustments for the four quarters are, in millions, 0, -$12, –$6, and $18, respectively. Generally, 50 percent of the sales can be collected within the quarter and 45 percent in the following quarter; the rest of the sales are bad debt. The bad debts are written off in the second quarter after the sales are made. The beginning accounts receivable balance is $84 million. Assuming all sales are on credit, compute the cash collections from sales for each quarter.

Don't round off until you get to the end.

Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these:

1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend.

2. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3.

3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3.

4. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Purchases of equipment occurred relatively evenly throughout the year.

5. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company’s line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $3,500,000. This line of credit is the company’s only interest-bearing debt.

6. Based on her discussions with management the advertising and sales commission percentages are expected to stay the same. Based on her knowledge of the industry, she believes that the amount of other expenses should be consistent with the trends from prior years.

Comparative income statement information for Uden Supply Company is presented in the below table.

UDEN SUPPLY COMPANY

Comparative Income Statements

Years Ended December 20X1, 20X2, and 20X3

(Thousands)

20X1 Audited 20X2 Audited 20X3 Audited 20X4 Expected

Sales 12,300 13,100 13,900

Cost of goods sold 8,490 9,050 9,620

Gross profit 3,810 4,050 4,280

Sales commissions 860 920 970

Advertising 246 260 280

Salaries 1,121 1,154 1,187

Payroll taxes 196 201 206

Employee benefits 179 184 189

Rent 72 75 78

Depreciation 72 75 78

Supplies 38 41 44

Utilities 33 36 39

Legal and Accounting 46 49 52

Miscellaneous 24 27 30

Interest Expense 354 372 384

Net income before taxes 569 656 743

Income taxes 128 148 167

Net income 441 508 576

Required:

b. Determine the expected amounts for 20X4 for each of the income statement items. (Round gross profit ratio and income taxes ratio to nearest four decimal places. Round other ratios to nearest two decimal places. Round all other intermediate computations to the nearest whole value. Enter your answers in thousands.)

c. Uden’s unaudited financial statements for the current year show a 30.79 percent gross profit rate. Assuming that this represents a misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net income before taxes for 20X4. (Enter your answers in thousands.)

Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds. Marc contributed $2,500 to an individual retirement account, and Marc paid alimony to a prior spouse in the amount of $1,500 (under a divorce decree effective June 1, 2005). Marc and Michelle have a 10-year-old son, Matthew, who lived with them throughout the entire year. Thus, Marc and Michelle are allowed to claim a $2,000 child tax credit for Matthew. Marc and Michelle paid $6,000 of expenditures that qualify as itemized deductions and they had a total of $3,500 in federal income taxes withheld from their paychecks during the year.

a. What is Marc and Michelle’s gross income?

b. What is Marc and Michelle’s adjusted gross income?

c. What is the total amount of Marc and Michelle’s deductions from AGI?

d. What is Marc and Michelle’s taxable income?

e. What is Marc and Michelle’s taxes payable or refund due for the year?

Calculate the value of a stock with the following expectations for dividend payments: $1.75 in Year 1, $2.00 in Year 2, and then annual dividend growth of 1.5% per year indefinitely. Assume a discount rate of 9%. Solve the problem two different ways: first by using the algebraic formula for the Gordon Growth Model combined with PV of uneven dividend payments, then by using Excel to calculate and sum the dividends and their respective present values for the next 150 years

HCJ Corporation is completing their cash budget for the following year. They are going to buy an industrial robot. They will make the acquisition on January 2 of next year, and it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.”

The robot will cost $1,000,000 financed with a a one-year $1,000,000 loan from My Bank and Trust Company. I’ve negotiated a repayment schedule of four equal installments on the last day of each quarter.

The interest rate will be 10 percent, and interest payments will be quarterly as well

HCJ Corporation is a manufacturer of metal picture frames. The firm’s two product lines are designated as S (small frames; 5 x 7 inches) and L (large frames; 8 x10 inches). The primary raw materials are flexible metal strips and 9-inch by 24-inch glass sheets.   Other raw materials, such as cardboard backing, are insignificant in cost and are treated as indirect materials.

Here is the provided budget information

     1. Sales in the fourth quarter of 20x0 are expected to be 50,000 S frames and 40,000 L frames. Over the next two years, sales in each product line will grow by 5,000 units each quarter over the previous quarter. For example, S frame sales in the first quarter of 20x1 are expected to be 55,000 units.

    2. HCJ's sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The company’s collection experience shows that 80 percent of the credit sales are collected during the quarter in which the sale is made, while the remaining 20 percent is collected in the following quarter. (For simplicity, assume the company is able to collect 100 percent of its accounts receivable.)

    3. The S frame sells for $10, and the L frame sells for $15. These prices are expected to hold constant

throughout 20x1.

    4. HCJ's production team attempts to end each quarter with enough finished-goods inventory in each product line to cover 20 percent of the following quarter’s sales. Moreover, an attempt is made to end each quarter with 20 percent of the glass sheets needed for the following quarter’s production. Since metal strips are purchased locally, HCJ buys on a just-in-time basis; inventory is negligible.   The purchase and production quantities are shown.

5. All direct-material purchases are made on account, and 80 percent of each quarter’s purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter.

6. Indirect materials are purchased as needed and paid for in cash. Work-in-process inventory is negligible.

7. Projected manufacturing costs in 20x1 are as follows:

Direct material:

Metal strips. @ $1 per foot

Glass sheets: $8 per sheet  

Direct labor for both products .1 hour @ $20 per hour

Manufacturing overhead: .1 direct-labor hour @ $10 per hour

Total manufacturing cost per unit . S: $7 L: $10

1. Sales budget:

2. Cash receipts budget:

3. Cash disbursements budget: (including purchases of direct materials and payments for same)

4. Summary cash budget:

The year 2014 was a nightmare for James Littleton. In January 2014, Littleton was diagnosed with Type 2 (adult onset) diabetes. In June, Littleton's physician expressed concern regarding the lack of circulation in his left leg, and in October, a circulatory specialist recommended that the left leg be amputated to the knee; reluctantly, but resigned to his fate, Littleton agreed.

On November 1, Littleton is admitted to Pinecrest General Hospital for surgery. In what can only be described as a horrible and catastrophic mistake, the surgeon misreads the diagnosis and surgical instructions and amputates Littleton's right leg by mistake. Littleton's left leg is amputated the next day.

Confined to a wheelchair, but supported by the love, care, and concern of his family, Littleton visits the offices of a local Pinecrest law firm, Stephenson, Gordon, and Ratcliff, which is a general partnership. Stephenson and Gordon agree to represent Littleton in the medical malpractice lawsuit and sign a contract of representation with Littleton, agreeing to represent him for the standard one-third contingency fee, plus associated expenses.

The statute of limitations for medical malpractice actions in the state is three years. Because of oversight and neglect (rumor has it that both Stephenson and Gordon have substance abuse problems), the firm fails to file a complaint against the attending surgeon and Pinecrest General Hospital within the three-year period. Even though he lacks legal training, Littleton knows he will be forever barred from bringing a lawsuit against the doctor and the hospital.

Having experienced catastrophic neglect from two professions he once respected, Littleton focuses his energy on bringing Stephenson, Gordon, and Ratcliff to justice. He sues the general partnership, as well as the individual attorneys, Stephenson, Gordon, and Ratcliff, for legal malpractice.

Ratcliff's attorney moves for dismissal of the claim against his client individually, arguing that Ratcliff was not an attorney of record for Littleton and, as a result, should be dismissed personally from the lawsuit.

What is the applicable rule for partnership liability? Will Physician Ratcliff succeed in his motion for dismissal? Why or Why not? Please explain.

A. What is the value today of a money machine that will pay $1,385.00 per year for 13.00 years? Assume the first payment is made 5.00 years from today and the interest rate is 6.00%.

B. What is the value today of a money machine that will pay $3,787.00 every six months for 29.00 years? Assume the first payment is made 4.00 years from today and the interest rate is 12.00%.

A) Given the year end prices of the following stocks, estimate the expected return of a portfolio of 30% AAA and 70% BBB. Enter your answer as a percent without the % sign. Round your final answer to two decimals.

B) Given the year end prices of the following stocks, estimate the standard deviation of the returns of a portfolio of 30% AAA and 70% BBB. Enter your answer as a percent without the % sign. Round your final answer to two decimals.

Suppose that over a year the daily percent change (+ or -) for the S&P 500 adjusted closing value is approximately normally distributed with a mean of +0.03% and a standard deviation of 0.97%. Use this model to answer the following questions. Show all calculations. Show the standardization calculations.
a) For a randomly selected trading day, what the is probability that the percent change is less than +1.50%?

b) For what proportion of the trading days is the percent change between -2.00% and +2.00%?

c) What is the 3rd quartile of the percent change?

d) The 80th percentile?