Question

A cash budget for the first three quarters of Brister Incorporated is given below (000 omitted). The company requires a minimum cash balance of at least $5,000 to start each quarter. If necessary, the company will borrow money from its bank to maintain this balance. The company will pay no interest in Quarters 1, 2, and 3. It will repay as much of its borrowings as possible as soon as it has more than $5,000 in cash in a given quarter. Suppose the company starts the first quarter with no bank debt. How much total bank debt does the company expect to have at the end of the third quarter?

Cash Budget	Quarter (000 omitted)
	1	2	3
Cash balance, beginning	$8	?	?
Add collections from customers	88	129	87
Total cash available	?	?	?
Less disbursements:
Purchase of inventory	55	65	65
Selling and administrative expenses	41	45	49
Equipment purchases	7	11	11
Dividends	2	2	2
Total disbursements	?	?	?
Excess (deficiency) of cash available over disbursements	?	?	?
Financing:
Borrowings	?	?	?
Repayments	?	?	?
Total financing	?	?	?
Cash balance, ending	?	?	?

Answer 1

Cash Budget	Quarter (000 omitted)
	1	2	3
Cash balance, beginning	8	5	5
Add collections from customers	88	129	87
Total cash available	96	134	92
Less disbursements:
Purchase of inventory	55	65	65
Selling and administrative expenses	41	45	49
Equipment purchases	7	11	11
Dividends	2	2	2
Total disbursements	105	123	127
Excess (deficiency) of cash available over disbursements	-9	11	-35
Financing:
Borrowings	14	0	40
Repayments	0	-6	0
Total financing	14	-6	40
Cash balance, ending	5	5	5

Total bank debt at the end of the third quarter = $14000 - $6000 + $40000 = $48000

Working:

Cash Budget	Quarter (000 omitted)
	1	2	3
Cash balance, beginning	8	5	5
Add collections from customers	88	129	87
Total cash available	=8+88	=5+129	=5+87
Less disbursements:
Purchase of inventory	55	65	65
Selling and administrative expenses	41	45	49
Equipment purchases	7	11	11
Dividends	2	2	2
Total disbursements	=55+41+7+2	=65+45+11+2	=65+49+11+2
Excess (deficiency) of cash available over disbursements	=96-105	=134-123	=92-127
Financing:
Borrowings	=9+5	0	=35+5
Repayments	0	-6	0
Total financing	=14+0	-6	=40+0
Cash balance, ending	=-9+14	=11-6	=-35+40