Question

Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:1st Quarter 2nd Quarter 3rd Quarter 4th QuarterTotal cash receipts $250,000 $400,000 $280,000 $300,000Total cash disbursements $309,000 $279,000 $269,000 $289,000The company's beginning cash balance for the upcoming fiscal year will be $34,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.Required:Complete the company's cash budget for the upcoming fiscal year. (Cash deficiency, repayments, and interest, should be indicated by a minus sign.)

Answer 1

Answer:

$\left[\begin{array}{ccccc}&Q1&Q2&Q3&Q4\\ beginning&34,000&10,000&94,950&105,950\\ receipts&250,000&400,000&280,000&300,000\\ disbursement&-309,000&-279,000&-269,000&-289,000\\ interest&0&-1,050&0&0\\ subtotal&-25,000&129,950&105,950&116,950\\ minimun&10,000&10,000&10,000&10,000\\ Financing&&&&\\ beginning&0&35,000&0&0\\ payment/loan&35,000&-35,000&&\\ ending&35,000&0&0&0\\&&&&\\ ending cash&10,000&94,950&105,950&116,950\\\end{array}\right]$

Explanation:

$\left[\begin{array}{ccccc}&Q1&Q2&Q3&Q4\\ beginning&34,000&10,000&94,950&105,950\\ receipts&250,000&400,000&280,000&300,000\\ disbursement&-309,000&-279,000&-269,000&-289,000\\ interest&0&-1,050&0&0\\ subtotal&-25,000&129,950&105,950&116,950\\ minimun&10,000&10,000&10,000&10,000\\ Financing&&&&\\ beginning&0&35,000&0&0\\ payment/loan&35,000&-35,000&&\\ ending&35,000&0&0&0\\&&&&\\ ending cash&10,000&94,950&105,950&116,950\\\end{array}\right]$

First we do Q1

beginning + receipts - disbursement

then we compare the this balance with the minimun.

in this case this open the needs for financing

We end with the minimun cash balance of 10,000

This will be the beginning for Q2

Now, we do Q2

same process

beginning + receipts - disbursement

but this time we also calculate the interest

35,000 x 3%  = 1,050

which also decrease the cash before financing.

We now compare with the minimun balance and paid the finance

We end the Q2 with a balance of 94,950

Q3 and Q4 follow the same procedure,

beginning + receipts - disbursement

compare with minimun

if below add financing, if not, don't.