Rundle Medical Clinic has budgeted the following cash flows: Can you help in obt
ID: 2536989 • Letter: R
Question
Rundle Medical Clinic has budgeted the following cash flows:
Can you help in obtaining the “Interest expense per month” & “Borrowing (repayment)” section of the table?
January
February
March
Cash receipts
$
112,000
$
118,000
$
138,000
Cash payments
For inventory purchases
96,000
78,000
91,000
For S&A expenses
37,000
38,000
33,000
Rundle Medical had a cash balance of $14,000 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. Rundle 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. )
Answer is not complete.
Cash Budget
January
February
March
Beginning cash balance
$14,000
$6,000
$8,000
Add: Cash receipts
112,000
118,000
138,000
Cash available
126,000
124,000
146,000
Less: Cash payments
For inventory purchases
96,000
78,000
91,000
For S&A expenses
37,000
38,000
33,000
Interest expense per month
????
?????
???????
$0.00
$0.00
$0.00
Total budgeted payments
133,000
116,000
124,000
Payments minus receipts
Surplus (shortage)
(7,000)
8,000
22,000
Financing Activity
Borrowing (repayment)
13,000
????
?????
Ending cash balance
$6,000
$8,000
$36,000
January
February
March
Cash receipts
$
112,000
$
118,000
$
138,000
Cash payments
For inventory purchases
96,000
78,000
91,000
For S&A expenses
37,000
38,000
33,000
Explanation / Answer
Cash Budget
January
February
March
Beginning cash balance
$14,000
$5,600
$5,000
Add: Cash receipts
112,000
118,000
138,000
Cash available
126,000
124,000
146,000
Less: Cash payments
For inventory purchases
96,000
78,000
91,000
For S&A expenses
37,000
38,000
33,000
Interest expense per month
400
530
510
Total budgeted payments
133,400
116,530
124,510
Payments minus receipts
Surplus (shortage)
(7,400)
7,070
18,490
Financing Activity
Borrowing (repayment)
13,000
(2,070)
(13,490)
Ending cash balance
$5,600
$5,000
$5,000
Interest for month of Jan = 40000*1% = $400
Shortfall = 7400, cash cushion required = 5,000, hence total borrowings = 12,400. But since borrowings are made in incrementsof $1,000, the borrowing are $13,000.
Interest for month of Feb = (40000+13000)*1% = 530
Excess balance =7070, cash cushion reqd = 5000, since repayment can be made in any amount, repayment = $2070. Closing loan balance = (53000-2070) = $50,930
Interest for March = 509.30,rounded off to $510.
Excess cash balance = 18490, cushion required = $5000, hence loan repaid = $13,490
Cash Budget
January
February
March
Beginning cash balance
$14,000
$5,600
$5,000
Add: Cash receipts
112,000
118,000
138,000
Cash available
126,000
124,000
146,000
Less: Cash payments
For inventory purchases
96,000
78,000
91,000
For S&A expenses
37,000
38,000
33,000
Interest expense per month
400
530
510
Total budgeted payments
133,400
116,530
124,510
Payments minus receipts
Surplus (shortage)
(7,400)
7,070
18,490
Financing Activity
Borrowing (repayment)
13,000
(2,070)
(13,490)
Ending cash balance
$5,600
$5,000
$5,000
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