Question

# Exercise 8-7 Cash Budget [LO8-8] Garden Depot is a retailer that is preparing its budget for...

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.)

 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

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