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	$	210,000	$	360,000	$	240,000	$	260,000
Total cash disbursements	$	281,000	$	251,000	$	241,000	$	261,000

The company’s beginning cash balance for the upcoming fiscal year will be $26,000. 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 Total cash available Total cash disbursements Excess (deficiency) of cash available over disbursements Financing: Borrowings Repayments Interest Total financing Ending cash balance $ $ $ $ $

Answer 1

Answer Cash Budget for quarter 1 through quarter 4

Garden Depot
Cash Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Beginning cash balance	$       26,000	$       10,000	$      60,700	$        59,700	$       26,000
Total cash receipts	$    210,000	$     360,000	$    240,000	$     260,000	$ 1,070,000
Total cash available	$    236,000	$     370,000	$    300,700	$     319,700	$ 1,096,000
Total cash disbursements	$    281,000	$     251,000	$    241,000	$     261,000	$ 1,034,000
Excess (deficiency) of cash available over disbursements	$    (45,000)	$     119,000	$      59,700	$        58,700	$       62,000
Financing:
Borrowings	$       55,000				$       55,000
Repayments		$     (55,000)			$     (55,000)
Interest		$       (3,300)			$       (3,300)
Total financing
Ending cash balance	$       10,000	$       60,700	$      59,700	$        58,700	$       58,700

Workings

Loan taken in first quarter = Cash deficiency + Ending balance required = $45000+$10000 = $55000

Borrowings repaid in second quarter = $55000

Interest on borrowings for 1st and 2nd quarter @ 3% quarterly interest = $55000 x 3% x 2 = $990

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