Essay About Uses Of Cash Statement And 1,000Increase

Hampton Machine Tool Company
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Hampton Machine Tool Company9-280-103 Rev. 12/3/91SUGGESTED ANSWERSRocky HigginsApril 2001Prepare 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, 1979SOURCESIncrease in bank debt$1,000Increase in retained earnings883Decrease in cash961Increase in customer advances726Increase in accounts payable600Decrease in accounts receivable561Increase in taxes payable329Decrease in net fixed assets92Decrease in prepaid expenses20TOTAL SOURCES OF CASH$5,172USESStock repurchase$3,000Increase in inventories2,163Decrease in accruals9TOTAL USES OF CASH$5,172Reflecting 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.ReceiptsSeptemberOctoberNovemberDecemberCollection of receivables*$684$1,323$779$1,604Bank loan350Total cash receipts$684$1,673$779$1,604DisbursementsPayment of accounts payable**$948$6009$600$600Other operating outlays400400400400Tax payments181181Interest payments – bank loan15152020Principal payments – bank loan1,350Dividend payments150Total disbursements$1,544$1,365$1,020$2,701Beginning cash balance$1,559$699$1,007$766Net 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 1979Sales$7,537Projected sales Sept. – DecemberCost of sales$5,740See belowOther expenses117See belowProfit before tax$1,68048% of profit before tax – $35 ITCTaxes771Profit after taxes$909Dividends150Proposed Dec. dividendAddition to retained earnings$759Notes:Basic accounting relationship: beginning inventory + purchases + other outlays – cost of sales = ending inventory; solving for cost of sales,