Question

Canoe Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash payments (excluding cash payments for loan principal and interest payments) for the first three months of next year.

	Cash Receipts			Cash payments
January	$	526,000		$	468,400
February		408,500			350,900
March		459,000			534,000

According to a credit agreement with the company’s bank, Canoe promises to have a minimum cash balance of $40,000 at each month-end. In return, the bank has agreed that the company can borrow up to $140,000 at a monthly interest rate of 1%, paid on the last day of each month. The interest is computed based on the beginning balance of the loan for the month. The company repays loan principal with any cash in excess of $40,000 on the last day of each month. The company has a cash balance of $40,000 and a loan balance of $80,000 at January 1.

Prepare monthly cash budgets for January, February, and March. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign.)

Answer 1

			Jan	Feb	mar
Beginning Balance f cash			40000	40000	74168
Add: Cash receipts			526000	408500	459000
Total amount available			566000	448500	533168
Less: Disbursals
Cash payments			468400	350900	534000
Interest payments			800	232	0
Total disbursals			469200	351132	534000
Excess/ Shortage of cash			96800	97368	-832
Loan:
Loan beginning balancec			80000	23200	0
Borrowings			0	0	40832
Repayments			-56800	-23200	0
Ending balance of loan			23200	0	40832
Ending balance of cash			40000	74168	40000