Thornton Medical Clinic has budgeted the following cash flows: Thornton Medical
ID: 2401936 • Letter: T
Question
Thornton Medical Clinic has budgeted the following cash flows:
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. )
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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 35,000Explanation / Answer
Answers
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
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
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
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