Question

Thornton Medical Clinic has budgeted the following cash flows:

	January			February			March
Cash receipts	$	116,000		$	122,000		$	142,000
Cash payments
For inventory purchases		98,000			80,000			93,000
For S&A expenses		39,000			40,000			35,000

Thornton Medical had a cash balance of $16,000 on January 1. The company desires to maintain a cash cushion of $9,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 2 percent per month. Repayments may be made in any amount available. Thornton 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. (Round intermediate and final answers to the nearest whole dollar amounts. Any repayments/shortage should be indicated with a minus sign. )

Cash Budget January February March Beginning cash balance $16,000 $(5,000) $(3,000) Add: Cash receipts 116,000 122,000 142,000 Cash available 132,000 117,000 139,000 Less: Cash payments For inventory purchases 98,000 80,000 93,000 For S&A expenses 39,000 40,000 35,000 Total budgeted payments 137,000 120,000 128,000 Payments minus receipts (5,000) (3,000) 11,000 Financing Activity Borrowing (repayment) Ending cash balance $(5,000) $(3,000) $11,000

Can you help me finish solving this question? Can you also show your work?

Answer 1

• All working forms part of the answer
• Corrections have been made to your answers, please go through the following answers. Workings are followed by the given answer:

Cash Budget	January	February	March
Beginning cash balance	$               16,000.00	$                       9,200.00	$                         9,000.00
Add: Cash receipts	$             116,000.00	$                   122,000.00	$                     142,000.00
Cash available	$             132,000.00	$                   131,200.00	$                     151,000.00
Less: Cash payments
For inventory purchases	$               98,000.00	$                     80,000.00	$                        93,000.00
For S&A expenses	$               39,000.00	$                     40,000.00	$                        35,000.00
Interest expense [Working #2]	$                     800.00	$                       1,100.00	$                          1,078.00
Total budgeted payments	$             137,800.00	$                   121,100.00	$                     129,078.00
Payments minus receipts
Surplus (Deficit)	$               (5,800.00)	$                     10,100.00	$                        21,922.00
Financing Activity
Borrowing (repayment) [Working #1]	$               15,000.00	$                     (1,100.00)	$                     (12,922.00)
Ending cash balance	$                 9,200.00	$                       9,000.00	$                          9,000.00

• Workings

Working #1: Amount of Loan borrowed / Repaid
Working		January	February	March
A	Surplus (Deficit)	$                        5,800.00	$        10,100.00	$        21,922.00
B	Minimum balance required	$                        9,000.00	$           9,000.00	$           9,000.00
C=A+B	Amount to be borrowed to meet minimum balance requirement	$                     14,800.00
D=A - B	Amount to repaid to meet the minimum balance required		$           1,100.00	$        12,922.00
	Borrowing allowed (increments of $ 1,000)	$                     15,000.00
Working #2: Interest expense calculation
Working		January	February	March
A	Beginning Loan Balance	$                     40,000.00	$        55,000.00	$        53,900.00
B= A x 2% per month	Interest at 2%	$                           800.00	$           1,100.00	$           1,078.00
C [Working #1]	Additional loan borrowed	$                     15,000.00	$                        -	$                        -
D [Working #1]	Loan Repaid	$                                     -	$           1,100.00	$        12,922.00
E = A + C - D	Ending Loan Balance	$                     55,000.00	$        53,900.00	$        40,978.00