Question

Cat & Dog Co. sells all natural cat and dog food. The company has an arrangement with its bank where the minimum cash balance in its bank account is $10,000. If the balance falls below $10,000, a short-term loan is automatically arranged and funds are deposited into the bank account. Interest is charged on the loan at a rate of 8% per year, and is payable in the month after the loan is taken. The opening cash balance for April was $10,000. There was no bank loan owing on March 31. The cash receipts budget is complete. Complete the cash payments budget and cash budget for April and May.

Cash Payments:	April	May
Pet food materials	75,000	55,000
Salaries	36,000	30,000
Rent	3,000	3,000
Interest
Total Cash Payments

Cash Budget	April	May
Cash Receipts	110,000	95,000

Answer 1

Note :- In this we have to maintain minimum balance of $10000 but in April Cat & Dog Co. balance is short by $1000. So, Cat & Dog Co. take short term loan. This loan is paid in May with Interest.