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Thornton Medical Clinic has budgeted the following cash flows: Thornton Medical

ID: 2401936 • Letter: T

Question

Thornton Medical Clinic has budgeted the following cash flows:

Thornton Medical had a cash balance of $16,000 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. Thornton 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. )

Can you help me finish solving this question? Can you also show your work?

January February March Cash receipts $ 116,000 $ 122,000 $ 142,000 Cash payments For inventory purchases 98,000 80,000 93,000 For S&A expenses 39,000 40,000 35,000

Explanation / Answer

Answers

Cash Budget

January

February

March

Beginning cash balance

$               16,000.00

$                       9,200.00

$                         9,000.00

Add: Cash receipts

$             116,000.00

$                   122,000.00

$                     142,000.00

Cash available

$             132,000.00

$                   131,200.00

$                     151,000.00

Less: Cash payments

For inventory purchases

$               98,000.00

$                     80,000.00

$                        93,000.00

For S&A expenses

$               39,000.00

$                     40,000.00

$                        35,000.00

Interest expense [Working #2]

$                     800.00

$                       1,100.00

$                          1,078.00

Total budgeted payments

$             137,800.00

$                   121,100.00

$                     129,078.00

Payments minus receipts

Surplus (Deficit)

$               (5,800.00)

$                     10,100.00

$                        21,922.00

Financing Activity

Borrowing (repayment) [Working #1]

$               15,000.00

$                     (1,100.00)

$                     (12,922.00)

Ending cash balance

$                 9,200.00

$                       9,000.00

$                          9,000.00

Working #1: Amount of Loan borrowed / Repaid

Working

January

February

March

A

Surplus (Deficit)

$                        5,800.00

$        10,100.00

$        21,922.00

B

Minimum balance required

$                        9,000.00

$           9,000.00

$           9,000.00

C=A+B

Amount to be borrowed to meet minimum balance requirement

$                     14,800.00

D=A - B

Amount to repaid to meet the minimum balance required

$           1,100.00

$        12,922.00

Borrowing allowed (increments of $ 1,000)

$                     15,000.00

Working #2: Interest expense calculation

Working

January

February

March

A

Beginning Loan Balance

$                     40,000.00

$        55,000.00

$        53,900.00

B= A x 2% per month

Interest at 2%

$                           800.00

$           1,100.00

$           1,078.00

C [Working #1]

Additional loan borrowed

$                     15,000.00

$                        -  

$                        -  

D [Working #1]

Loan Repaid

$                                     -  

$           1,100.00

$        12,922.00

E = A + C - D

Ending Loan Balance

$                     55,000.00

$        53,900.00

$        40,978.00

Cash Budget

January

February

March

Beginning cash balance

$               16,000.00

$                       9,200.00

$                         9,000.00

Add: Cash receipts

$             116,000.00

$                   122,000.00

$                     142,000.00

Cash available

$             132,000.00

$                   131,200.00

$                     151,000.00

Less: Cash payments

For inventory purchases

$               98,000.00

$                     80,000.00

$                        93,000.00

For S&A expenses

$               39,000.00

$                     40,000.00

$                        35,000.00

Interest expense [Working #2]

$                     800.00

$                       1,100.00

$                          1,078.00

Total budgeted payments

$             137,800.00

$                   121,100.00

$                     129,078.00

Payments minus receipts

Surplus (Deficit)

$               (5,800.00)

$                     10,100.00

$                        21,922.00

Financing Activity

Borrowing (repayment) [Working #1]

$               15,000.00

$                     (1,100.00)

$                     (12,922.00)

Ending cash balance

$                 9,200.00

$                       9,000.00

$                          9,000.00

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