Can you do these two interest expense per month Borrowing (repayment) Fanning Me

Question

Can you do these two interest expense per month Borrowing (repayment)

Fanning Medical Clinic has budgeted the following cash flows: Janua Cash receipts Cash payments s105,800 $111,800 $131,00 For inventory purchases For S&A; expenses 92,588 74,58887,580 33,588 34,500 29,50 Fanning Medical had a cash balance of $10.500 on January 1. The company desires to maintain a cash cushion of $10,000 Funds are assumed to be borrowed, in increments of $1,000, and repald on the last day of each month, the interest rate is 3 percent per month Repayments ay be made in any amount evailable Fanning po s its vendors onthe deyoft e om a so the compan had monthly $40,000 beginning balance in its line of credit liability account from this years quarterly results Required Prepare a cash budget (Round intermediate and final answers to the nearest whole doller amounts. Any repayments/shortage should be indiceted with a minus sign. ) Cash Budget cash balance 10 500 S 8 5001 105 00 1.00 100 500 Add Cash receipts Cash available Less Cash payments 500 22 500 For invenlory purchases ssr.pptx here to search

Explanation / Answer

The following assumptions are taken as per requirements in the assignment

·         The opening balance of line of Credit is $40,000 , which means it can borrow till the amount of $40,000

·         The company will borrow if there is shortage in receipts means receipts are less than payments

·         The company will borrow in the multiples of $1000 ,means if there is shortage of $9500 it will borrow $10,000

·         The closing cash balance at the end of the month should be minimum of $10,000

·         It will make repayment only it has surplus cash closing balance more than $10,000

·         The interest on borrowing from bank is 3% per month

·         The payment of inventory purchases is made at the end of the month , Therefore if any borrowing is required it will taken at the end of the month and the interest of 3% will be expense in next month , means if borrowing is taken in month of January as calculated in cash budget it will show interest expenses for the month in Febuary

The calculation of borrowing or repayment from bank with interest calculation is calculated below

Cash budget January February March Beginning Cash balance            10,500      10,500      10,000 Add : Cash Receipts          105,000    111,000    131,000 Cash available          115,500    121,500    141,000 Less : Cash Payments For inventory purchases            92,500      74,500      87,500 For S&A purchases            33,500      34,500      29,500 interest expense for the month            630 Total budgetted payments          126,000    109,630    117,000 Payments minus receipts Surplus (shortage)          (10,500)      11,870      24,000 Financing activity Borrowing or (repayment)            21,000      (1,870)    (14,000) Ending cash balance            10,500      10,000      10,000

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