ACCT504 Case Study 3: P4-55A Nathan Farmer, chief financial officer of Bosworth Wireless

Case Study 3

(Learning Objective 5: Construct and use a cash budget)
Nathan Farmer, chief financial officer of Bosworth Wireless, is responsible for the company’s budgeting process. Farmer’s staff is preparing the Bosworth cash budget for 2013. A key input to the budgeting process is last year’s statement of cash flows, which follows (amounts in thousands):
Bosworth Wireless
Statement of Cash Flows
In thousands
Cash Flows from Operating Activities
Collection from customers 61,000
Interest received 400
Purchase of inventory (46,000)
Operating expenses (13,200)
Net cash provided by operating activities 2,200

Cash Flows from Investing Activities
Purchase of equipment (4,500)
Purchase of investments (800)
Net cash used by investing activities (5,300)

Cash Flows from Financing Activities
Payment of dividends (500)
Payment of long-term debt (200) (500)
Cash balance, beginning 1,400
Cash balance, ending (2,200)

1. Prepare the Bosworth Wireless cash budget for 2013. Date the budget simply “2013” and denote the beginning and ending cash balances as “beginning” and “ending.” Assume the company expects 2013 to be the same as 2012, but with the following changes:
a. In 2013, the company expects a 15% increase in collections from customers and a 24% increase in purchases of inventory.
b. There will be no sales of investments in 2013.
c. Bosworth plans to issue no stock in 2013.
d. Bosworth plans to end the year with a cash balance of $3,550.
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