The following budget estimates have been prepared by Graduate Company: Month Cas
ID: 2519679 • Letter: T
Question
The following budget estimates have been prepared by Graduate Company:
Month Cash Receipts Cash Payments
May $180,000 $150,000
June $110,300 $145,000
July $150,000 $145,480
Graduate Co wants to keep a minimum balance of $40,000 in the cash account. Any excess cash is invested in a money market account earning 9% compunded monthly. Interest received is reinvested in the money market account. Any cash deficiencies are covered by a withdrawal from the money market account. If additional cash is needed,m the company has a line oif credit at 12 % interest with the local bank. Interest is paid monthly
Assume a cash balance at May 1 of $40,000, a money market account balance of $0, and a line of credit balance of $0.
A. Prepare a cash budget for May, June and July.
Explanation / Answer
Interest Received on money market A/c = 30000*9% *1/12 = $ 225
Interest Paid on borrowed Cash = 4475*12%*1/12 = $44.75 = $ 45 (round off)
may june july opening balance 40000 40000 40000 cash receipts 180000 110300 150000 total cash available 220000 150300 190000 cash payments 150000 145000 145480 Surplus/ (deficit) 70000 5300 44520 Excess invested in money market A/c 30000 Interest Received/ (Interest Paid) - 225 (45) Amount withdrwan from money market and interest thereon - 30225 Additional cash borrowed from local bank/(repayment of cash borrowed) - 4475 (4475) Closing Balance $40000 $40000 $40000Related Questions
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