Question

Karim Corp. requires a minimum $8,100 cash balance. If necessary, loans are taken to meet this requirement at a cost of 2% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is $8,500 and the company has no outstanding loans. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow.
July August September
Cash receipts $ 24,100 $ 32,100 $ 40,100
Cash payments 28,150 30,100 32,100
Prepare a cash budget for July, August, and September. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)
KARIM CORP.
Cash Budget
For July, August, and September
July August September
Beginning cash balance $8,500
Cash receipts 24,100
Total cash available 32,600
Cash payments
Interest revenue
Preliminary cash balance
Additional loan (loan repayment)
Ending cash balance
Loan balance
Loan balance - Beginning of month $0
Additional loan (loan repayment)
Loan balance - End of month

Answer 1

Answer:

a. Ending Cash Balance are as follow:

July = $8,100

August = $8,100

September = $14,343

b. Loan Balance End of Month are as follows:

July = $3,650

August = $1,723

September = $0  

Explanation:

Note: See the attached excel file for the cash budget.

In the attached excel file, the following calculations are made:

July Additional loan = Minimum required cash balance - July Preliminary cash balance = $8,100 - $4,450 = $3,650

August Loan repayment = August Preliminary cash balance - Minimum required cash balance = $10,027 - $8,100 = $1,927

September Loan repayment = Loan Balance End of Month at the beginning of September = $1,723