Question

Vernon Medical Clinic has budgeted the following cash flows. January $117,000 February $123,000 March $143,000 Cash receipts Cash payments For inventory purchases For S&A expenses 98,500 39,500 80,500 40,500 93,500 35,500 Vernon Medical had a cash balance of $16,500 on January 1. The company desires to maintain a cash cushion of $10,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 3 percent per month. Repayments may be made in any amount available. Vernon 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. ) January February March Cash Budget Section 1: Cash Receipts Total cash available Section 2: Cash Payments Total budgeted disbursements Section 3: Financing Activities

Answer 1

Cash Budget	January	February	March
Cash receipts
Beginning cash balance	16500	10300	10000
cash receipts	117000	123000	143000
Total cash available [1]	133500	133300	153000
Cash payments
For inventory purchases	98500	80500	93500
For S & A Expenses	39500	40500	35500
Interest expense	40000*3%=1200	56000*3%=1680	55380*3%= 1661
Total budgeted disbursements [2]	139200	122680	130661
Excess of receipts over disbursement [1-2]	-5700	10620	22339
Financing activities
Borrowing /(repayment)	16000	(620)	(12339)
Ending cash balance	10300	10000	10000

Working note:

a)For month of January,Amount borrowed = Desired ending balance - Excess of receipts over disbursement

                                                             = 10000 - (-5700)

                                                             = 10000 +5700

                                                            = 15700    (rounded to nearest 16000)

Since amount is borrowed in increments of 1000 ,amount borrowed is nearest to 16000

b)Amount financed at end of January = 40000 (beginning ) +16000 additional borrowing = 56000

c)Amount financed at end of February = 56000 (beginning ) -620 repatyment= 55380