Question

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	$	200,000	$	350,000	$	230,000	$	250,000
Total cash disbursements	$	274,000	$	244,000	$	234,000	$	254,000

The company’s beginning cash balance for the upcoming fiscal year will be $24,000. 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
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Beginning cash balance
Total cash receipts					0
Total cash available	0	0	0	0	0
Total cash disbursements					0
Excess (deficiency) of cash available over disbursements	0	0	0	0	0
Financing:
Borrowings					0
Repayments					0
Interest					0
Total financing	0	0	0	0	0
Ending cash balance	$0	$0	$0	$0	$0

Answer 1

	Garden Depot
	Cash Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Beginning cash balance	24000	10000	52400	48400	24000
Total cash receipts	200000	350000	230000	250000	1030000
Total cash available	224000	360000	282400	298400	1054000
Less total cash disbursements	274000	244000	234000	254000	1006000
Excess of cash available over disbursements	-50000	116000	48400	44400	48000
Financing:
Borrowings	60000	0	0	0	60000
Repayments	0	-60000	0	0	-60000
Interest	0	-3600	0	0	-3600
Total financing	60000	-63600	0	0	-3600
Ending cash balance	10000	52400	48400	44400	44400
Interest = 60000*3%*2 = $3600