Question

28) O'Brien Company has the following information: Cash Balance, June 30 $50,000 Dividends paid in July 60,000 Cash paid for operating expenses in July 185,500 Depreciation expense in July 12,000 Cash collections on sales in July 510,000 Merchandise purchases paid in July 180,000 Purchase equipment for cash in July 94,500 O'Brien Company wants to maintain a minimum cash balance of $50,000. Assume that borrowing occurs at the beginning of the month and repayments occur at the end of the month. Interest of 1% per month is paid in cash at the end of each month debt is outstanding. Borrowing and repayment is carried out in multiples of $1,000. Required: Prepare a cash budget for July. Answer: Beginning cash balance $50,000 Minimum cash balance desired 50,000 Available cash balance $0 Cash receipts and disbursements: Collections from customers $510,000 Payments for merchandise (180,000) Payments for operating expenses (185,500) Dividends paid (60,000) Purchase equipment for cash (94,500) Net cash receipts and disbursements (10,000) Deficiency of cash before financing $(10,000) Borrowing(at beginning of month) 11,000 Interest Payment($11,000 x 1%) (110) Total cash increase from financing 10,890 Ending cash balance $50,890

How is the ending balance $50,890?

Answer 1

Cash budget for July
Beginning cash balance	50000
Cash collections on sales in July	510,000
Cash Available for disbursements (A)	560,000
Less: Cash disbursements
Merchandise purchases paid in July	180,000
Cash paid for operating expenses in July	185,500
Dividends paid in July	60,000
Purchase equipment for cash in July	94,500
Total Cash disbursements (B)	520,000
Add: minimum cash Balance	50,000
Total cash needed for maintain cash balance of 50000	570,000
Deficiency of cash before financing (560000-570000)	-10,000
Financing
Borrowing of loan	11000
Repayment of loan
Interest paid (11000*1%)	-110
Total Financing ( C )	10890
Ending cash balance (A - B + C)	50,890
Company need to borrow money for 11000 (10000 for maintain cash balance and 1000 for interest payment).
Depreciation expense in non-cash expense. It is not considered for cash budget.