Question

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:

Total cash receipts

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

$180,000 $330,000 $210,000 $230,000

Total cash disbursements

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

$260,000 $230,000 $220,000 $240,000

The company’s beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.

Required:

Prepare the company’s cash budget for the upcoming fiscal year. (Repayments, and interest, should be indicated by a minus sign.)

Answer 1

Solution

Garden Depot
Cash budget
	Q1	Q2	Q3	Q4	Year
Beginning Cash balance	$      20,000	$       10,000	$      35,800	$      25,800	$       20,000
Total cash receipt	$    180,000	$     330,000	$    210,000	$    230,000	$     950,000
Total cash available	$    200,000	$     340,000	$    245,800	$    255,800	$     970,000
Less: Total cash disbursement	$    260,000	$     230,000	$    220,000	$    240,000	$     950,000
Excess of cash available over disbursement	$    (60,000)	$     110,000	$      25,800	$      15,800	$       20,000
Financing:
Borrowings	$      70,000				$       70,000
Repayments	$                -	$     (70,000)	$               -	$               -	$     (70,000)
Interest	$                -	$       (4,200)	$               -	$               -	$       (4,200)
Total financing	$      70,000	$     (74,200)	$               -	$               -	$       (4,200)
Ending cash balance	$      10,000	$       35,800	$      25,800	$      15,800	$       15,800

Working note

Loan is taken at the beginning of the quarter and paid at the end of second . This means Loan of 70000 is taken at beginning of Q1 and repaid at End of Q2 so 2 Quarters interest will be paid on $70000.
Beginning cash of Quarter 1 is the beginning cash of Year.