Question

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total cash receipts $ 360,000 $ 480,000 $ 410,000 $ 430,000 Total cash disbursements $ 400,000 $ 370,000 $ 360,000 $ 380,000 The company’s beginning cash balance for the upcoming fiscal year will be $18,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. Required: Prepare the company’s cash budget for the upcoming fiscal year. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Answer 1

	Garden Depot
	Cash Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Beginning cash balance	18000	10000	86080	136080	18000
Total cash receipts	360000	480000	410000	430000	1680000
Total cash available	378000	490000	496080	566080	1698000
Less total cash disbursements	400000	370000	360000	380000	1510000
Excess of cash available over disbursements	-22000	120000	136080	186080	188000
Financing:
Borrowings	32000	0	0	0	32000
Repayments	0	-32000	0	0	-32000
Interest	0	-1920	0	0	-1920
Total financing	32000	-33920	0	0	-1920
Ending cash balance	10000	86080	136080	186080	186080
Interest = 32000*3%*2 = $1920