Question

Finch Medical Clinic has budgeted the following cash flows.

	January			February			March
Cash receipts	$	106,000		$	112,000		$	132,000
Cash payments
For inventory purchases		93,000			75,000			88,000
For S&A expenses		34,000			35,000			30,000

Finch Medical had a cash balance of $11,000 on January 1. The company desires to maintain a cash cushion of $5,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 1 percent per month. Repayments may be made in any amount available. Finch pays its vendors on the last day of the month also. The company had a monthly $40,000 beginning balance in its line of credit liability account from this year’s quarterly results.

Required

Prepare a cash budget. (Round intermediate and final answers to the nearest whole dollar amounts. Any repayments/shortage should be indicated with a minus sign. )

Answer 1

Cash Budget	January	February	March
Opening Cash Balance	11000	5000	5000
Add: Cash Reciepts	106000	112000	132000
Cash Available	117000	117000	137000
Less: Cash Payments:
For Inventory Purchases	93000	75000	88000
For S&A Expense	34000	35000	30000
Total Budgeted Payments	127000	110000	118000
Cash balance (Cash Available-Payments)	-10000	7000	19000
Financing Activity
Borrowing/(Repayments)	15000	-2000	-13000
Interest on Loan			-280
Closing Cash Balance	5000	5000	5720
Interest calculation:
Jan Borrowing-1 Month	2000	1%	20
Jan Borrowing-2 Month	13000	1%	260
			280