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Newman Medical Clinic has budgeted the following cash flows. January February March   Cash receipts $ 106,000...

Newman Medical Clinic has budgeted the following cash flows.
January February March
  Cash receipts $ 106,000 $ 112,000 $ 132,000
  Cash payments
     For inventory purchases 93,000 75,000 88,000
     For S&A expenses 34,000 35,000 30,000

     Newman Medical had a cash balance of $11,000 on January 1. The company desires to maintain a cash cushion of $5,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 1 percent per month. Repayments may be made in any amount available. Newman 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. (Any repayments/shortage should be indicated with a minus sign. Round your answers to the nearest whole dollar amount.)

Solutions

Expert Solution

Jan Feb March
Beginning cash balance $   11,000.00 $     5,600.00 $     5,000.00
Add: Cash receipt $ 106,000.00 $ 112,000.00 $ 132,000.00
Cash available $ 117,000.00 $ 117,600.00 $ 137,000.00
Less: Cash payments
For inventory purchase $   93,000.00 $   75,000.00 $   88,000.00
For S&A expense $   34,000.00 $   35,000.00 $   30,000.00
Interest expense per month $        400.00 $        560.00 $        540.00
Total budgeted expense $ 127,400.00 $ 110,560.00 $ 118,540.00
Payment minus receipts
Surplus (shortage) $ (10,400.00) $     7,040.00 $   18,460.00
Financing Activity
Borrowing (repayment) $   16,000.00 $    (2,040.00) $ (13,460.00)
Ending cash balance $     5,600.00 $     5,000.00 $     5,000.00
Workings:
Computation of Interest:
For Jan ($ 40000 x 1%) $       400
For Feb [($ 40000 + $ 16000) x 1%] $       560
For March [($ 40000 + $ 16000 - $ 2040) x 1%] $       540

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