Question

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.)

Answer 1

				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