Solomon Medical Clinic has budgeted the following cash flows: Solomon Medical ha

Question

Solomon Medical Clinic has budgeted the following cash flows:

Solomon Medical had a cash balance of $15,000 on January 1. The company desires to maintain a cash cushion of $7,000. 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. Solomon 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 receipts $ 114,000 $ 120,000 $ 140,000 Cash payments For inventory purchases 97,000 79,000 92,000 For S&A expenses 38,000 39,000 34,000

Explanation / Answer

**Borrowing amount at beginning of march :40000+15000- 1150= 53850

interest : 53850*3%= 1615.5 [rounded to 1616]

Jan Feb Mar Beginning cash balance 15000 7800 7000 Add:cash receipts 114000 120000 140000 cash available 129000 127800 147000 less:cash payment for inventory purchase (97000) (79000) (92000) for S& A (38000) (39000) (34000) For Interest (1200) (1650)   [(40000+15000)*.03] (1616) Total budgeted payment (136200) (119650) (127616) Payment minus receipts (7200)    [129000-136200] 8150 19384 surplus /(shortage) -7200-7000=-14200 8150-7000= 1150 19384-7000= 12384 Financing activity Borrowing /(Repayment) 15000    [since borrowing is made in increments of 1000] (1150) (12384) Ending cash balance 7800     [-7200+15000] 7000 7000

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