Adams Medical Clinic has budgeted the following cash flows: January FebruaryMarc
ID: 2519790 • Letter: A
Question
Adams Medical Clinic has budgeted the following cash flows: January FebruaryMarch Cash receipts Cash payments $101,000 $107,000 $127,000 For i For S&A; expenses nventory purchases 90,500 31,500 72,500 32,500 85,500 27,500 Adams Medical had a cash balance of $8,500 on January 1. The company desires to maintain a cash cushion of $6,000. 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. Adams 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.) Cash Budget January February March Cash available Less: Cash paymentsExplanation / Answer
Answers
Jan
Feb
Mar
Beginning balance
$ 8,500.00
$ 6,700.00
$ 6,000.00
Cash receipts
$ 1,01,000.00
$ 1,07,000.00
$ 1,27,000.00
Cash Available
$ 1,09,500.00
$ 1,13,700.00
$ 1,33,000.00
Less: Cash payments
Inventory purchase
$ 90,500.00
$ 72,500.00
$ 85,500.00
S & A
$ 31,500.00
$ 32,500.00
$ 27,500.00
Total budgeted payments
$ 1,22,000.00
$ 1,05,000.00
$ 1,13,000.00
Payments minus receipts
$ (12,500.00)
$ 8,700.00
$ 20,000.00
Minimum balance required
$ 6,000.00
$ 6,000.00
$ 6,000.00
Financing activity
Borrowed (repaid)
$ 20,000.00
$ (1,500.00)
$ (12,830.00)
Interest
$ (800.00) [40000 x 2%]
$ (1,200.00) [(60000 x 2%]
$ (1,170.00) [58500 x 2%]
Ending Cash balance
$ 6,700.00
$ 6,000.00
$ 6,000.00
January
Minimum cash balance required = $6000
Interest payment for loan = $40000 x 2% = $800
Cash balance before above = $(12500)
Total funds borrowed in increment of $1000 = 6000 + 800 + 12500 = 19300 = $20,000
February
Excess Cash $8700. Minimum balance = $6000. Hence, borrowing can be repaid = 8700 – interest – 6000 = 1500
March
Excess Cash $20000. Minimum balance = $6000. Hence, borrowing can be repaid = 20000 – interest – 6000 = $12,830
Jan
Feb
Mar
Beginning balance
$ 8,500.00
$ 6,700.00
$ 6,000.00
Cash receipts
$ 1,01,000.00
$ 1,07,000.00
$ 1,27,000.00
Cash Available
$ 1,09,500.00
$ 1,13,700.00
$ 1,33,000.00
Less: Cash payments
Inventory purchase
$ 90,500.00
$ 72,500.00
$ 85,500.00
S & A
$ 31,500.00
$ 32,500.00
$ 27,500.00
Total budgeted payments
$ 1,22,000.00
$ 1,05,000.00
$ 1,13,000.00
Payments minus receipts
$ (12,500.00)
$ 8,700.00
$ 20,000.00
Minimum balance required
$ 6,000.00
$ 6,000.00
$ 6,000.00
Financing activity
Borrowed (repaid)
$ 20,000.00
$ (1,500.00)
$ (12,830.00)
Interest
$ (800.00) [40000 x 2%]
$ (1,200.00) [(60000 x 2%]
$ (1,170.00) [58500 x 2%]
Ending Cash balance
$ 6,700.00
$ 6,000.00
$ 6,000.00
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