Question

A) Prepare Drew Consulting's cash budget for January AND February

B) How much cash will Drew borrow in February if cash receipts from customers that month total $39,000 instead of $49,000

Assume Drew Consulting began January with $15,000 cash. Management forecasts that cash receipts from credit customers will be $48,000 in January and $49,000 in February. Projected cash payments include equipment purchases ($18,000 in January and $41,000 in February) and selling and administrative expenses ($3,000 each month). Drew's bank requires a $28,000 minimum balance in the firm's checking account. At the end of any month when the account balance falls below $28,000, the bank automatically extends credit to the firm in multiples of $5,000. Drew borrows as little as possible and pays back loans each month in $1,000 increments, plus 12% interest on the entire unpaid principal. The first payment occurs one month after the loan. Requirements 1. Prepare Drew Consulting's cash budget for January and February 2018 2. How much cash will Drew borrow in February if cash receipts from customers that month total $39,000 instead of $49,000? Requirement 1. Prepare Drew Consulting's cash budget for January and February. Begin by completing the January cash budget, then complete the February cash budget. (Complete all answer boxes. Enter a "O" for any zero balances. Round all amounts entered into the cash budget to the nearest whole dollar. Enter a cash deficiency, principal repayments, andíor a net repayment on financing with a minus sign or parentheses. Assume there is no debt at the beginning of January.) Drew Consulting Cash Budget Two Months Ended February 2018 January Beginning cash balance Cash receipts Cash available Cash payments: Capital expenditures

Answer 1

Requirement 1
DREW CONSULTING, INC.
Cash Budget
For the Two Months Ended February 28, 2018
						January	February
Beginning cash balance						$         15,000	$         42,000
Cash receipts						48,000	49,000
Cash available						63,000	91,000
Cash payments:
	Capital expenditures					18,000	41,000
	Selling and administrative expenses					3,000	3,000
	Interest expense					0	0
Total cash payments						21,000	44,000
Ending cash balance before financing						42,000	47,000
Minimum cash balance desired						(28,000)	(28,000)
Projected cash excess (deficiency)						14,000	19,000
Financing:
	Borrowing					0	0
	Principal repayments					0	0
Total effects of financing						0	0
Ending cash balance						$         42,000	$         47,000
Requirement 2
							February Revised
						January	February
Beginning cash balance						$         15,000	$         42,000
Cash receipts						48,000	39,000
Cash available						63,000	81,000
Cash payments:
	Capital expenditures					18,000	41,000
	Selling and administrative expenses					3,000	3,000
	Interest expense					0	0
Total cash payments						21,000	44,000
Ending cash balance before financing						42,000	37,000
Minimum cash balance desired						(23,000)	(23,000)
Projected cash excess (deficiency)						19,000	14,000
Financing:
	Borrowing					0	0
	Principal repayments					0	0
Total effects of financing						0	0
Ending cash balance						$         42,000	$         37,000