Question

bers are in dollars.

	January	February	March
Beginning cash balance
Add: Cash receipts		187,500	255,000
Total cash available	262,500
Less: Cash needs	------	-----	-----
For inventory purchases	127,500	112,500	118,500
For S&A expenses		67,500	69,000
To purchase assets	37,500	37,500	37,500
Total cash payments	240,000	217,500	225,000
Add: Desired cash cushion		7,500	7,500
Total cash needed		225,000	232,500
Surplus (shortage) of cash	15,000		30,000
Financing activity:	-----	-----	-----
Amount borrowed (repaid)
Interest expense
Ending cash balance

The company desires a minimum cash balance of $7,500 at the end of each month, and this requirement was met at the beginning of this calendar year. In any month in which there is an expected cash deficiency, the company's bank will extend it a loan equal to the expected shortage amount. The loan is assumed to have been made on the last day of the month. Any time the company has a cash surplus, it must repay as much of the outstanding loans as possible. The bank charges monthly interest of 1% on any outstanding loan balance. Any money in excess of the desired minimum cash balance is invested elsewhere.

Complete the monthly cash budget above and find the missing numbers in the table (except where you see "-----").

Answer 1

Cash Budget
	January	February	March
Beginning cash balance	$     7,500.00	$   22,500.00	$    7,500.00
Add: Cash receipts	$ 255,000.00	$ 187,500.00	$ 255,000.00
Total cash available	$ 262,500.00	$ 210,000.00	$ 262,500.00
Less: Cash needs
For inventory purchases	$ 127,500.00	$ 112,500.00	$ 118,500.00
For S&A expenses	$    75,000.00	$   67,500.00	$ 69,000.00
To purchase assets	$    37,500.00	$   37,500.00	$ 37,500.00
Total cash payments	$ 240,000.00	$ 217,500.00	$ 225,000.00
Add: Desired cash cushion	$     7,500.00	$     7,500.00	$   7,500.00
Total cash needed	$ 247,500.00	$ 225,000.00	$ 232,500.00
Surplus (shortage) of cash	$    15,000.00	$ (15,000.00)	$ 30,000.00
Financing activity:
Amount borrowed (repaid)		$   15,000.00	$ (15,000.00)
Interest expense			$      (150.00)
Ending cash balance	$    22,500.00	$     7,500.00	$ 22,350.00

Calculations and explanations.

1. Beginning cash balance= $7500… Question says about cash requirement that ‘’this requirement was met at the beginning of this calendar year’’. This means company has maintained minimum balance at beginning of year which is$7500 and hence it is beginning balance in January.
2. Cash receipts in January= Total available cash in January – Beginning cash balance..($262,500-7500)=$255000.
3. Balance of S&A Expense in January= Total cash payments –Cash paid for inventory purchase-cash paid to purchase assets. ($240,000-$127,500-$37,500)=$75,000.
4. Ending cash balance of every month is equal to Surplus amount of cash plus desired cash balance plus loan taken minus loan repaid minus money invested elsewhere.
5. Interest is paid for one month only.

Alternative solution

Student is requested to use the below given solution if above answer does not match.

Alternative solution is given assuming extra cash is invested elsewhere.

Cash Budget
	January	February	march
Beginning cash balance	$     7,500.00	$     7,500.00	$    7,500.00
Add: Cash receipts	$ 255,000.00	$ 187,500.00	$ 255,000.00
Total cash available	$ 262,500.00	$ 195,000.00	$ 262,500.00
Less: Cash needs
For inventory purchases	$ 127,500.00	$ 112,500.00	$ 118,500.00
For S&A expenses	$    75,000.00	$   67,500.00	$ 69,000.00
To purchase assets	$    37,500.00	$   37,500.00	$ 37,500.00
Total cash payments	$ 240,000.00	$ 217,500.00	$ 225,000.00
Add: Desired cash cushion	$     7,500.00	$     7,500.00	$    7,500.00
Total cash needed	$ 247,500.00	$ 225,000.00	$ 232,500.00
Surplus (shortage) of cash	$    15,000.00	$ (30,000.00)	$ 30,000.00
Financing activity:
Amount borrowed (repaid)		$   30,000.00	$ (29,700.00)
Interest expense			$      (300.00)
Ending cash balance before investment elsewhere	$    22,500.00	$     7,500.00	$    7,500.00
Less: Money invested elsewhere	$      15,000.00	0	0
Net Ending cash balance	$        7,500.00	$       7,500.00	$      7,500.00