Newman Medical had a cash balance of $8,000 on January 1. The company desires to
ID: 2447060 • Letter: N
Question
Newman 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. Newman 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.
Prepare a cash budget. (Any repayments/shortage should be indicated with a minus sign. Round your answers to the nearest whole dollar amount.)
1. What is the borrowing (replacement) and interest for January, February, and March? Please break down how to find the answer.
Newman Medical Clinic has budgeted the following cash flows. Newman Medical Clinic has budgeted the following cash flows. Newman 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. Newman 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. Prepare a cash budget. (Any repayments/shortage should be indicated with a minus sign. Round your answers to the nearest whole dollar amount.) 1. What is the borrowing (replacement) and interest for January, February, and March? Please break down how to find the answer.Explanation / Answer
Cash Budget January February March
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Opening cash balance $ 8000 $18000 $ 5000
Add :- cash receipts $120000 $116000 $136000
less :- payment for inventory $110000 $ 82000 $ 95000
less :- S&A expenses $ 31000 $ 32000 $ 27000
closing balance of cash A -$ 13000 $20000 $19000
Interest on borrowings $180 $32
( 1% per month on borrowings
payable at month ends )
Net Balance 0 $19820 $18968
Cash Cushion desired B $ 5000 $5000 $5000
Borrowings A-B $18000* 0 0
Repayments $14820* $3180 ($18000*-$14820*)
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Surplus cash balance 0 0 $15788 ($18968-$3180)
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Year 3 beginning cash on hand is arrived at by carrying forward the cushion to be maintained at year 2 since the excess balance of $19,820 over $5000 which is $14820 is used to repay the borrowings.
Note :- Work on Interest on Borrowings
Borrowings at end of one month $18000
1% after at end of one month $ 180
Repayment $14820
Balance to be repaid $ 18000- $14820=$3180
Interest for the next month $3180 x 1% = $31.80 (or) $32