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20210228175821finc2743 Ch 4 Problem Set S2021 2

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Subject
Finance
School
LeTourneau University
Type
Homework
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Chapter 4 Problem Set (60 points)
a. Cash Budget
Trevor and Kristen Hill need to prepare a cash budget for the next three months to make sure
that they can cover their expenditures during the period. Trevor and Kristen have tracked
their finances for the past few years using an app, and thus know what percentage of their
take-home pay of $5500 goes for various expenses.
Expenses
Housing
29.0%
Utilities
5.0%
Food
9.5%
Transportation
6.0%
Medical/dental
5.0%
Contributions
10.5%
Clothing (3% normally; $450 in Month 3)
3.0%
Property Taxes ($1260, Month 2 only)
Appliances
1.0%
Personal Care
2.0%
Travel and Entertainment (6%; $1400 in Month 3)
6.0%
Other
5.0%
Savings
7.5%
The Hills must maintain a $1500 cash balance to avoid checking fees; however, the balance
on March 31, 2021 was $1300. Their savings account balance on March 31 was $20,000.
a. Prepare a quarterly cash budget for Trevor and Kristen for the next three months.
b. Using your calculations, show the monthly inflows and outflows and the end-of-
month balances for the Hills checking account.
c. In what months do the Hills run a deficit? A surplus?
d. What is your analysis of the Hills’ budget?

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b. Pro-forma Statements
The 2020 Income Statement and Balance Sheet for Longview Products, Inc. (LPI) are
shown below.
For 2021, the following information is likely:
1. Projected sales are $6,500,000
2. Cost of goods sold in 2019 includes $1,150,000 in fixed costs
3. Operating expense in 2019 includes 400,000 in fixed costs
4. Interest expense will increase to $120,000
5. LPI will pay cash dividends of 40% of net profits after taxes
6. Marketable securities will increase to $500,000; notes payable will decrease to
$50,000; while long-term debt and common stock will remain unchanged
7. Cash, inventories, accounts receivable, and accounts payable will change in direct
response to the change in sales
8. Manufacturing equipment costing $600,000 will be purchased during the year
Longview Products, Inc.
Income Statement
For the Year Ended December 31, 2020
Sales revenue 6,000,000$
Less: Cost of Goods Sold 3,300,000$
Gross Profits 2,700,000$
Less: Operating Expenses 1,000,000$
Operating Profits (EBIT) 1,700,000$
Less: Interest Expense 95,000$
Net profits before taxes 1,605,000$
Less: Taxes @ 21% 337,050$
Net profits after taxes 1,267,950$
Less: Cash dividends 300,000$
To retained earnings 967,950$
Longview Products, Inc.
Balance Sheet
31-Dec-20
Assets Liabilities and Stockholders' Equity
Cash 250,000$ Accounts Payable 600,000$
Marketable Securities 200,000$ Taxes Payable 100,000$
Accounts Receivable 600,000$ Notes Payable 250,000$
Inventories 550,000$ Total current liabilities 950,000$
Total current assets 1,600,000$ Long-term debt 700,000$
Net fixed assets 1,400,000$ Total liabilities 1,650,000$
Total assets 3,000,000$ Common stock 100,000$
Retained earnings 1,250,000$
Total Liabilities and Stockholders' Equity 3,000,000$

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Chapter 4 Problem Set (60 points) a. Cash Budget Trevor and Kristen Hill need to prepare a cash budget for the next three months to make sure that they can cover their expenditures during the period. Trevor and Kristen have tracked their finances for the past few years using an app, and thus know what percentage of their take-home pay of $5500 goes for various expenses. Expenses Housing Utilities Food Transportation Medical/dental Contributions Clothing (3% normally; $450 in Month 3) Property Taxes ($1260, Month 2 only) Appliances Personal Care Travel and Entertainment (6%; $1400 in Month 3) Other Savings 29.0% 5.0% 9.5% 6.0% 5.0% 10.5% 3.0% 1.0% 2.0% 6.0% 5.0% 7.5% The Hills must maintain a $1500 cash balance to avoid checking fees; however, the balance on March 31, 2021 was $1300. Their savings account balance on March 31 was $20,000. a. Prepare a quarterly cash budget for Trevor and Kristen for the next three months. b. Using your calculations, show the monthly inflows and outflows and the end-ofmonth balances for the Hills checking account. c. In what months do the Hills run a deficit? A surplus? d. What is your analysis of the Hills’ budget? b. Pro-forma Statements The 2020 Income Statement and Balance Sheet for Longview Products, Inc. (LPI) are shown below. Longview Products, Inc. Income Statement For the Year Ended December 31, 2020 Sales revenue Less: Cost of Goods Sold Gross Profits Less: Operating Expenses Operating Profits (EBIT) Less: Interest Expense Net pr ...
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