Exercise 14-20 Kinnion Medical Clinic has budgeted the following cash flows. Jan

Question

Exercise 14-20

Kinnion Medical Clinic has budgeted the following cash flows.

January February March Cash receipts$ 100,000 $106,000 $126,000 Cash payments For inventory purchases 90,000 72,000 85,000 For S&A expenses 31,000 32,000 27,000

Kinnion Medical had a cash balance of $8,000 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. Kinnion 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

Explanation / Answer

January February March Cash Receipts       100,000       106,000       126,000 Cash Payments Inventory        90,000        72,000        85,000 S&A expenses        31,000        32,000        27,000 Cash Budget January February March Opening Cash          8,000          5,000          7,000 Receipts       100,000       106,000       126,000 Interest expense             182               -                 -   Payments       121,000       104,000       112,000 Ending Cash before cusion       (13,182)          7,000        21,000 Cash cushion          5,000          5,000          5,000 Borrowed        18,182               -                 -   Repaid       (18,182)               -                 -   Ending Cash after cusion          5,000          7,000        21,000

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