Hampton Machine Tool Company
Essay by Md Sabeel Ansari • October 19, 2015 • Lab Report • 1,228 Words (5 Pages) • 2,994 Views
Hampton Machine Tool Company
9-280-103 Rev. 12/3/91
SUGGESTED ANSWERS
Rocky Higgins
April 2001
- Prepare a sources and uses of cash statement for Hampton for the period November 30 – August 31, 1979.
Sources and Uses of Cash November 30, 1978 – August 31, 1979
SOURCES | |
Increase in bank debt | $1,000 |
Increase in retained earnings | 883 |
Decrease in cash | 961 |
Increase in customer advances | 726 |
Increase in accounts payable | 600 |
Decrease in accounts receivable | 561 |
Increase in taxes payable | 329 |
Decrease in net fixed assets | 92 |
Decrease in prepaid expenses | 20 |
TOTAL SOURCES OF CASH | $5,172 |
USES | |
Stock repurchase | $3,000 |
Increase in inventories | 2,163 |
Decrease in accruals | 9 |
TOTAL USES OF CASH | $5,172 |
- Reflecting on this sources and uses statement, why do you think this profitable company cannot repay its loan on time? What developments between November and August have contributed to this situation?
Judging from the sources and uses statement it appears that the sharp increase in inventories is responsible for the company’s inability to repay its loan. This increase in inventories appears due to unexpected delay in receiving a critical part.
- Based on the information in the case, prepare a projected cash budget for the four months, September through December 1979.
Projected Cash Budget September 1979 through December 1979.
Receipts | September | October | November | December |
Collection of receivables* | $684 | $1,323 | $779 | $1,604 |
Bank loan | 350 | |||
Total cash receipts | $684 | $1,673 | $779 | $1,604 |
Disbursements | ||||
Payment of accounts payable** | $948 | $6009 | $600 | $600 |
Other operating outlays | 400 | 400 | 400 | 400 |
Tax payments | 181 | 181 | ||
Interest payments – bank loan | 15 | 15 | 20 | 20 |
Principal payments – bank loan | 1,350 | |||
Dividend payments | 150 | |||
Total disbursements | $1,544 | $1,365 | $1,020 | $2,701 |
Beginning cash balance | $1,559 | $699 | $1,007 | $766 |
Net cash receipts (disbursements) | (860) | 308 | (241) | (1,097) |
Ending cash balance | $699 | $1,007 | $766 | $(331) |
* Assumes a 30-day collection period.
** Assumes a 30-day payables period.
October collections of receivables equals $2,163 minus $840 advance payment. Similarly, the November collections equals $1,505 minus $726 advance payment.
- Prepare a projected income statement for the same period, and a pro forma balance sheet as of December 31, 1979. (Your income statement need not be monthly. You can make one covering the entire four months.)
Pro Forma Income Statement September – December 1979
Sales | $7,537 | Projected sales Sept. – December |
Cost of sales | $5,740 | See below |
Other expenses | 117 | See below |
Profit before tax | $1,680 | 48% of profit before tax - $35 ITC |
Taxes | 771 | |
Profit after taxes | $909 | |
Dividends | 150 | Proposed Dec. dividend |
Addition to retained earnings | $759 |
Notes:
Basic accounting relationship: beginning inventory + purchases + other outlays – cost of sales = ending inventory; solving for cost of sales,
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