Question

Use the following information to answer Question 3.  

Harvest Oaks’ beginning balance of cash on April 1 is $450,000.

Harvest Oaks wants to maintain a minimum cash balance of $400,000. The company has an agreement with a local bank that allows the company to borrow money in any increment at the beginning of each month. The interest rate on these loans is 1% per month and is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Question 3. Use the table below to prepare the cash budget for the second quarter.

Cash Budget
	April	May	June	Quarter
Beginning cash balance
Total cash receipts	2,225,000	2,450,000	2,700,000	7,375,000
Total cash available
Less total cash disbursements	2,500,000	2,700,000	2,200,000	7,400,000
Excess (deficiency) of cash available over disbursements
Financing:
Borrowings
Repayments
Interest
Total financing
Ending cash balance

Answer 1

	April	May	June	Quarter
Beginning cash	450000	400000	400000
Cash receipt	2225000	2450000	2700000	7375000
Total Cash Available	2675000	2850000	3100000	8625000
Less: Disburshment	2500000	2700000	2200000	7400000
Excess (deficiency)	175000	150000	900000	1225000
Financing:
Borrowings	225000	250000	0	475000
Repayments	0	0	475000	475000
Interest	0	0	11750	11750
Total Financing	225000	250000	-486750	-11750
Ending Cash Balance	400000	400000	413250
Interest
(225000*1%*3) = 6750
(250000*1%*2) = 5000
Total = 11750