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 $200,000 $250,000 Total cash receipts Total cash disbursements 2nd Quarter $331,000 $217,000 31, 3rd Quarter $226,000 $214,000 4th Quarter $236,000 $231,000 The company's beginning cash balance for the upcoming fiscal year will be $20,200. The company requires a minimum cash balance of $11,600 and may borrow any amount needed from a local bank at a quarterly interest rate of 2.6%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. Required: Prepare the company's cash budget for the upcoming fiscal year. (Show deficiencies, repayments, interest, and total financing preceded by a minus sign when appropriate. Enter all other amounts as positive values. Round interest amounts to the nearest whole number. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Answer 1

To prepare the cash budget, we need to start the working for each quarter with the opening cash balance. Then add receipts to it and subtract the disbursements. If the balance is less than minimum balance requirement, then we need to borrow the shortfall funds. When in the next quarter there is surplus, we will repay the amount along with interest.

Cash budget for the year 1st quarter 2nd quarter 3rd quarter 4th quarter 20,200 11,600 82,047 94,047 200,000 331,000 226,000 236,000 -250,000 -217,000 -214,000 -231,000 -29,800 125,600 94,047 99,047 Particulars Opening balance Add: receipts Less: disbursements Balance Add: borrowing (if the balance is less than minimum balance) Less: Repayment Less: Interest Closings balance O 41,400 O -41,400 -2,153 82,047 ol 11,600 94,047 99,047.

In the first quarter, there is shortfall of 41,400 (i.e. 29,800+11,600) which is borrowed at the beginning of 1st quarter. There is surplus fund at the end of 2nd quarter, so 41,400 will be repaid at the end of 2nd quarter. Interest is to be calculated for 2 quarters (1st and 2nd)

Interest =(41,400*2.6%*2)