ACC500 Case Study – Comprehensive Cash Budget Manchester Auditoriums Inc. provides the venue for many performers and talent companies touring the Southern New Hampshire region. Kathleen Johnson, treasurer of Manchester Auditoriums, needs to prepare a loan request to the Granite Cooperative Bank to meet the cash needs for the upcoming year which begins on January 1, 2015. Manchester Auditoriums has become a premier venue in the area and has grown considerably in the last few years. Below are the latest balance sheet and income statement for the year that just ended on December 31, 2014. Manchester Auditoriums Inc Manchester Auditoriums Inc Balance Sheet Income Statement As of December 31, 2014 Year ended December 31, 2014 (in thousands) (in thousands) Assets Revenues $ 22,255 Cash $ 350 Accounts receivable 3,750 Expenses Supplies inventory 700 Salaries and wages 10,682 Unexpired insurance 36 Depreciation 900 Total current assets 4,836 Insurance expense 12 Net fixed assets 8,300 Supplies expense 5,250 Total assets $ 13,136 Selling expense 1,796 Administrative expense 1,900 Liabilities and Equity Utilities expense 420 Equity Line of credit $ 180 Interest expense 206 Accounts payable* 600 Total expenses 21,166 Accrued payroll 648 Accrued expenses (S&A) 308 Pretax income $ 1,089 Accrued Interest 3 Return on Sales 4.9% Mortgage payable, current 300 Total current liabilities 2,039 Mortgage payable, long-term 3,600 Stockholders’ equity 7,497 Total liabilities and equity $ 13,136 *accounts payable: 565 related to supplies, 35 related to utilities Johnson is asking the bank to extend the existing line of credit to $1 million to help with the cash flow during the seasonal demands of the business and for the expansion of the business. The bank is requiring Manchester to maintain a minimum cash balance of $250k, and an accounts receivable balance equal to 150% of the loan. Granite will charge interest at 6% per annum of the outstanding loan and accrued interest balance at the end of the quarter to be paid next quarter when cash becomes Southern New Hampshire University – ACC500 Comprehensive Cash Budget Case Study Page 2 available; however, the accrued interest at the end of December 2014 must be paid in the first quarter of 2015. In the past, Manchester has not had any problem meeting the requirements of the existing line of credit. However, with the planned capital expenditures needed for expansion and the growing business needs, the loan manager has expressed concern with Johnson over the situation. The loan manager has asked for a quarterly cash budget and projected balanced sheet and income statement for 2015 to justify the need for the additional line of credit and to ensure that the company will be in compliance with the loan requirements. Kathleen Johnson has put together the following information for the upcoming year (all numbers are in thousands): 2014 Actual Sales $ Nov 2,030 Dec 2,700 2015 Budgeted Sales Cash Collections Jan 1,700 On sales from last year and Q1, Q2 of 2015 Feb 1,940 10% current month of the sale Mar 2,240 25% next month of the sale Apr 2,700 65% 2 months from the month of sale May 2,460 Jun 2,360 On sales for the 2nd half of 2015 Jul 1,840 20% current month of the sale Aug 1,700 30% next month of the sale Sep 1,760 50% 2 months from the month of sale Oct 1,800 Nov 2,200 Projected Accounts Receivable @ Dec 31, 2015 is $3,500k Dec 3,000 Total 25,700 All other budget assumptions: Supplies: – use the same percentage of sales as 2014 – purchased throughout the year in the ratio of budgeted sales, paid a month later – ending balance in supplies is projected to be $650k Salaries & Wages: – 48% of budgeted sales, paid twice a month on the 1st and 15th – December 2014 accrued wages represents one-half of December wages Utilities: – 5% increase over 2014. Spread evenly each month, paid a month later Depreciation: – $1,040k spread evenly each quarter Selling & Admin: – 3% increase over 2014. Spread evenly each month, paid a month later – In the fourth quarter, additional $50k per month of selling expense Expired Insurance: – $12k Interest Expense: – obtain figures from cash budget worksheet Capital Spending: – Q1 $1,400k; Q2 $350k; Q3 $500k; Q4 $500k Mortgage: – the current mortgage payable is paid evenly throughout the year – interest is 5% per annum on the beginning total mortgage balance for the quarter Southern New Hampshire University – ACC500 Comprehensive Cash Budget Case Study Page 3 Required: 1. Prepare a cash budget by quarter for 2015 using the provided template. Will Manchester keep their projected borrowing needs in line with the $1 million line of credit they are asking the bank for? 2. As we see in the budgeted assumptions, Manchester wants to improve its cash flow by concentrating on collecting receivables sooner in the second half of 2015. What else can Manchester do to improve its cash flow? 3. Prepare a projected income statement and balance sheet for 2015. 4. Manchester’s goal is to have return on sales of 8% in 2015. Based on the projected income statement calculated for 2015 will Manchester achieve this goal? What are some things Manchester can do to improve its return on sales? 5. Based on the cash budget and projected financial statements, do you recommend that the company keep growing and spend money on capital expenditures? Why? Prepare your response in accordance with the grading rubric for a short paper/case study, and please show the detail of your calculations used to arrive at your answers. Prepare one Word document with both the narrative and schedules included. I recommend preparing the schedules/calculations in Excel where necessary and pasting them into the body of the paper.

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