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	$8	?	?
Add collections from customers	88	129	89
Total cash available	?	?	?
Less disbursements:
Purchase of inventory	54	66	65
Selling and administrative expenses	40	45	49
Equipment purchases	7	10	10
Dividends	2	2	2
Total disbursements	?	?	?
Excess (deficiency) of cash available over disbursements	?	?	?
Financing:
Borrowings	?	?	?
Repayments	?	?	?
Total financing	?	?	?
Cash balance, ending	?	?	?

Multiple Choice

• $6,000

• $43,000

• $37,000

• $12,000

Answer 1

Cash Budget	Quarter 1	Quarter 2	Quarter 3
Cash balance, beginning	8	5	5
Add collections from customers	88	129	89
Total cash available	96	134	94
Less disbursements:
Purchase of inventory	54	66	65
Selling and administrative expenses	40	45	49
Equipment purchases	7	10	10
Dividends	2	2	2
Total disbursements	103	123	126
Excess (deficiency) of cash available over disbursements	-7	11	-32
Financing:
Borrowings	12	0	37
Repayments	0	-6	0
Total financing	12	6	43
Cash balance, ending	5	5	5

Total bank debt does the company expect to have at the end of the third quarter is $43,000

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