Question

Thornton Medical Clinic has budgeted the following cash flows:

	January			February			March
Cash receipts	$	116,000		$	122,000		$	142,000
Cash payments
For inventory purchases		98,000			80,000			93,000
For S&A expenses		39,000			40,000			35,000

Thornton Medical had a cash balance of $16,000 on January 1. The company desires to maintain a cash cushion of $9,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 2 percent per month. Repayments may be made in any amount available. Thornton pays its vendors on the last day of the month also. The company had a monthly $40,000 beginning balance in its line of credit liability account from this year’s quarterly results.

Required

Prepare a cash budget. (Round intermediate and final answers to the nearest whole dollar amounts. Any repayments/shortage should be indicated with a minus sign. )

Answer 1

Cash Budget	January	February	March
Beginning cash balance	$               16,000.00	$                       9,200.00	$                         9,000.00
Add: Cash receipts	$             116,000.00	$                   122,000.00	$                     142,000.00
Cash available	$             132,000.00	$                   131,200.00	$                     151,000.00
Less: Cash payments
For inventory purchases	$               98,000.00	$                     80,000.00	$                        93,000.00
For S&A expenses	$               39,000.00	$                     40,000.00	$                        35,000.00
Interest expense [Working #2]	$                     800.00	$                       1,100.00	$                          1,078.00
Total budgeted payments	$             137,800.00	$                   121,100.00	$                     129,078.00
Payments minus receipts
Surplus (Deficit)	$               (5,800.00)	$                     10,100.00	$                        21,922.00
Financing Activity
Borrowing (repayment) [Working #1]	$               15,000.00	$                     (1,100.00)	$                     (12,922.00)
Ending cash balance	$                 9,200.00	$                       9,000.00	$                          9,000.00