Munoz Medical Clinic has budgeted the following cash flows: ***** Can you please
ID: 2545366 • Letter: M
Question
Munoz Medical Clinic has budgeted the following cash flows: ***** Can you please explain in detail – where does the $18,000 come from- This is for the Borrowing (repayment) section**** This is based on the correct answers below according to Connect***? Please explain, I am super confused as to where did $18,000 came from???
January
February
March
Cash receipts
$
110,000
$
116,000
$
136,000
Cash payments
For inventory purchases
95,000
77,000
90,000
For S&A expenses
36,000
37,000
32,000
Munoz Medical had a cash balance of $13,000 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. Munoz 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
$13,000
$9,200
$9,000
Add: Cash receipts
110,000
116,000
136,000
Cash available
123,000
125,200
145,000
Less: Cash payments
For inventory purchases
95,000
77,000
90,000
For S&A expenses
36,000
37,000
32,000
Interest expense per month
800
1,160
1,139
Total budgeted payments
131,800
115,160
123,139
Payments minus receipts
Surplus (shortage)
(8,800)
10,040
21,861
Financing Activity
Borrowing (repayment)
18,000
(1,040)
(12,861)
Ending cash balance
$9,200
$9,000
$9,000
January
February
March
Cash receipts
$
110,000
$
116,000
$
136,000
Cash payments
For inventory purchases
95,000
77,000
90,000
For S&A expenses
36,000
37,000
32,000
Explanation / Answer
Answer
Hence, amount to be borrowed = $8800 (to make the cash balance positive first) + $9000 to make the cash balance reach minimum requirement limit = 8800 + 9000 = $17800.
Since, amount can be borrowed in multiple in $1000, $17,800 cannot be borrowed. Either $17000 can be borrowed or $18000.
If $17000 is borrowed only, the cash balance will not reach minimum cash balance requirement of $9000. Therefore, amount to be borrowed will be $18,000.
This borrowing of $18000 will make ending cash balance of January $9,200 which is above minimum cash balance requirement.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.