Question

A cash budget for the first three quarters of Brister Incorporated is given below (000 omitted). The company requires a minimum cash balance of at least $5,000 to start each quarter. If necessary, the company will borrow money from its bank to maintain this balance. The company will pay no interest in Quarters 1, 2, and 3. It will repay as much of its borrowings as possible as soon as it has more than $5,000 in cash in a given quarter. Suppose the company starts the first quarter with no bank debt. How much total bank debt does the company expect to have at the end of the third quarter?

Cash Budget	Quarter (000 omitted)
	1	2	3
Cash balance, beginning	$9	?	?
Add collections from customers	88	128	89
Total cash available	?	?	?
Less disbursements:
Purchase of inventory	55	64	65
Selling and administrative expenses	39	45	48
Equipment purchases	8	11	11
Dividends	2	2	2
Total disbursements	?	?	?
Excess (deficiency) of cash available over disbursements	?	?	?
Financing:
Borrowings	?	?	?
Repayments	?	?	?
Total financing	?	?	?
Cash balance, ending	?	?	?

Multiple Choice

• $37,000

• $43,000

• $12,000

• $6,000

Answer 1

Cash Budget	Quarter (000 omitted)
	1	2	3
Cash balance, beginning	$9	$5	$5
Add collections from customers	$88	$128	$89
Total cash available	$97	$133	$94
Less disbursements:
Purchase of inventory	$55	$64	$65
Selling and administrative expenses	$39	$45	$48
Equipment purchases	$8	$11	$11
Dividends	$2	$2	$2
Total disbursements	$104	$122	$126
Excess (deficiency) of cash available over disbursements	-$7	$11	-$32
Financing during the quarter:
Borrowings	$12	$0	$37
Repayments	$0	$6	$0
Total financing	$12	$6	$0
Cash balance, ending	$5	$5	$5
Bank debt at the end of the quarter	$12	$6	$43
Hence, the second option i.e. $43,000 is the correct answer.