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	127	89
Total cash available	?	?	?
Less disbursements:
Purchase of inventory	55	64	65
Selling and administrative expenses	40	45	50
Equipment purchases	9	10	11
Dividends	2	2	2
Total disbursements	?	?	?
Excess (deficiency) of cash available over disbursements	?	?	?
Financing:
Borrowings	?	?	?
Repayments	?	?	?
Total financing	?	?	?
Cash balance, ending	?	?	?

Answer 1

Cash Budget	Quarter (000)
	1	2	3
Cash balance, beginning	$9	$5	$5
Add: Collections from customers	88	127	89
Total cash available	97	132	94
Less: Disbursements:
Purchase of inventory	55	64	65
Selling and administrative expenses	40	45	50
Equipment purchases	9	10	11
Dividends	2	2	2
Total disbursements	106	121	128
Excess (deficiency) of cash available over disbursements	(9)	11	(34)
Financing:
Borrowings	14		39
Repayments		(6)
Total financing	14	(6)	39
Cash balance, ending	$5	$5	$5

Total bank debt expected at the end of the third quarter = $14,000-6,000+39,000 = $47,000