Question

Exercise 8-7 Cash Budget [LO8-8]

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:

	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Total cash receipts	$	190,000	$	340,000	$	220,000	$	240,000
Total cash disbursements	$	267,000	$	237,000	$	227,000	$	247,000

The company’s beginning cash balance for the upcoming fiscal year will be $22,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.

Required:

Prepare the company’s cash budget for the upcoming fiscal year. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Answer 1

Answer-

Garden Depot
Cash Budget
	Quarter
Particulars	1st	2nd	3rd	4th	Year
	$	$	$	$
Beginning cash balance	22000	10000	44100	37100	22000
Add-Total cash receipts	190000	340000	220000	240000	990000
Total cash available	212000	350000	264100	277100	1012000
Less-Total cash disbursements	267000	237000	227000	247000	978000
Excess of cash available over disbursements	-55000	113000	37100	30100	34000
Financing:-
Borrowings	65000	0	0	0	65000
Repayments	0	-65000	0	0	-65000
Interest	0	-3900	0	0	-3900
Total financing	65000	-68900	0	0	-68900
Ending cash balance	10000	44100	37100	30100	30100

Where- Interest = $65000*3%*2 quarter

= $3900