Question

a. Cash collections from services in July, August, and September, are projected to be $96,000, $156,000, and $120,000 respectively. b. Cash payments for the upcoming third quarter are projected to be $140,000 in July, $104,000 in August, and $137,000 in September. c. The cash balance as of the first day of the third quarter is projected to be $31,000. d. The health center has a policy that it must maintain a minimum cash balance of $24,000. The health center has a line of credit with the local bank that allows it to borrow funds in months that it would not otherwise have its minimum balance. If the company has more than its minimum balance at the end of any given month, it uses the excess funds to pay off any outstanding line of credit balance. Each month, Sesnie Health Center pays interest on the prior month's line of credit ending balance. The actual interest rate that the health center will pay floats since it is tied to the prime rate. However, the interest paid during the budget period is expected to be 3% of the prior month's line of credit ending balance (if the company did not have an outstanding balance at the end of the prior month, then the health center does not have to pay any interest). All line of credit borrowings are taken or paid off on the first day of the month. As of the first day of the third quarter, Sesnie Health Center did not have a balance on its line of credit.

Answer 1

July Combined Cash Budget For the month of July through September August Beginning Balance of Cash 31,000 Plus: Cash Collections 96,000 Total Cash Available 127,000 Less: Cash Payments 140,000 Ending Cash Balance before Financing -13,000 Financing: Plus: New Borrowings 37,000 Less: Debt repayments Less: Interest Payments Ending Cash Balance 24,000 24,000 156,000 180,000 104,000 76,000 September 37,890 120,000 157,890 137,000 20,890 3,110 37,000 1,110 37,890 24,000 Interest Payments, August = $37,000 * 3% = $1,110