Question

Karim Corp. requires a minimum $8,200 cash balance. Loans taken to meet this requirement cost 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is $8,600, and the company has no outstanding loans. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow. July August September Cash receipts $ 24,200 $ 32,200 $ 40,200 Cash payments 28,300 30,200 32,200 Prepare a cash budget for July, August, and September. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)

Answer 1

Answer:

KARIM CORP
Cash Budget
for July, August and September
	July	August	September
Beginning Cash Balance	8,600	8,200	8,200
Cash receipts	24,200	32,200	40,200
Total Cash Available	32,800	40,400	48,400
Cash payments	28,300	30,200	32,200
Interest Expense		37	17
Preliminary cash balance	4,500	10,163	16,183
Additional loan (Loan Repayments)	3,700	-1,963	-1,737
Ending Cash Balance	8,200	8,200	14,446
Loan Balance
Loan Balance -Beginning of Month	-	3,700	1,737
Additional Loan (Loan Repayment)	3,700	-1,963	-1,737
Loan Balance End of Month	3,700	1,737	-

Calculation:

For preparing the cash budget, first we need to include the beginning cash balance of 8,600 provided in the question and add the cash receipt for the month provided. Next step is to calculate the total cash available by adding both. Then we need to deduct the cash payment to get the Preliminary cash balance for July. Since the Preliminary cash balance is less than the minimum balance the difference need to be taken as loan.

So, the ending balance becomes the beginning balance of August. And we need to do the same steps,

But here, we need to include the interest. So the amount of loan taken in July was 3,700. So interest for August = 3,700 x 1% = 37

Preliminary cash balance of August will be calculated after deducting the interest. Since the preliminary cash balance is 10,163.

The balance after 8,100 will be used to pay off loan. 10,163 - 8,100 = 1,963

So, the loan balance will be = 3,700 - 1,963 = 1,737

The interest for September will be = 1,737 x 1% = 17.37

After deducting interest after previous steps are followed, we get the Preliminary cash balance as 16,183, and the balance of loan is paid off which is 16,183 - 1,737 = 14,446