Fayette Medical Clinic has budgeted the following cash flows: Fayette Medical ha
ID: 2570517 • Letter: F
Question
Fayette Medical Clinic has budgeted the following cash flows:
Fayette Medical had a cash balance of $16,000 on January 1. The company desires to maintain a cash cushion of $10,000. Funds are assumed to be borrowed, in increments of $2,000, 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. Fayette pays its vendors on the last day of the month also. The company had a monthly $80,000 beginning balance in its line of credit liability account from this year’s quarterly results.
Required
Prepare a cash budget.
January February March Cash receipts $ 240,000 $ 232,000 $ 272,000 Cash payments For inventory purchases 220,000 164,000 190,000 For S&A expenses 62,000 64,000 54,000Explanation / Answer
Solution:
Cash Budget
Cash Budget
January
February
March
Cash balance at beginning
$16,000
$10,000
$10,940
Add: cash receipts
$240,000
$232,000
$272,000
Total cash available
$256,000
$242,000
$282,940
Less: Cash disbursements
Cash disbursements for merchandise
220000
164000
190000
For S&A Expenses
62000
64000
54000
Total disbursements
$282,000
$228,000
$244,000
Excess (deficiency) of cash available over disbursements
-$26,000
$14,000
$38,940
Financing:
Borrowings
$36,000
-$3,000
-$28,000
Repayments (including interest)
-$60
-$840
Total Finiancing
$36,000
-$3,060
-$28,840
Cash balance, ending
$10,000
$10,940
$10,100
Note:
Interest Calculation February = $3,000*1%*2 = $60
Interest Calculation March = $28,000*1%*3 = $840
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Cash Budget
January
February
March
Cash balance at beginning
$16,000
$10,000
$10,940
Add: cash receipts
$240,000
$232,000
$272,000
Total cash available
$256,000
$242,000
$282,940
Less: Cash disbursements
Cash disbursements for merchandise
220000
164000
190000
For S&A Expenses
62000
64000
54000
Total disbursements
$282,000
$228,000
$244,000
Excess (deficiency) of cash available over disbursements
-$26,000
$14,000
$38,940
Financing:
Borrowings
$36,000
-$3,000
-$28,000
Repayments (including interest)
-$60
-$840
Total Finiancing
$36,000
-$3,060
-$28,840
Cash balance, ending
$10,000
$10,940
$10,100
Note:
Interest Calculation February = $3,000*1%*2 = $60
Interest Calculation March = $28,000*1%*3 = $840
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