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: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total cash receipts $300,000 $420,000 $350,000 $370,000 Total cash disbursements $358,000 $328,000 $318,000 $338,000 The company’s beginning cash balance for the upcoming fiscal year will be $35,000. 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: Complete the company's cash budget for the upcoming fiscal year. (Cash deficiency, repayments, and interest, should be indicated by a minus sign.)

Answer 1

Solution:

Cash Budget

CASH BUDGET
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Beginning cash balance	$35,000	$10,000	$67,020	$99,020	$35,000
Add: Cash Receipts	$300,000	$420,000	$350,000	$370,000	$1,440,000
Total cash available	$335,000	$430,000	$417,020	$469,020	$1,475,000
Less: Total Cash disbursements	$358,000	$328,000	$318,000	$338,000	$1,342,000
Excess (deficiency) of cash available over disbursements	-$23,000	$102,000	$99,020	$131,020	$133,000
Financing:
Borrowings	$33,000	$0	$0	$0	$33,000
Repayments	$0	-$33,000	$0	$0	($33,000)
Interest (Refer calculation below)*	$0	-$1,980	$0	$0	($1,980)
Total Finiancing	$33,000	-$34,980	$0	$0	($1,980)
Ending Cash Balance	$10,000	$67,020	$99,020	$131,020	$131,020
*(Interest for 2 quarter = 33,000*3%*2 = 1,980)

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