Question

Presented below are partial October, November, and December cash budgets for Holidays Events. Loans are obtained in increments of $1,000 at the start of each month to maintain a minimum end-of-month balance of $12,000. Interest is one percent simple interest (no compounding) per month, payable when the loan is repaid. Repayments are made as soon as possible, subject to the minimum end-of-month balance.

Required:
Complete the short-term financing section of the cash budget and all missing figures

October November December Total
Cash balance, beginning $24,0005
Collection on sales 36,000 41,000 81,000
Cash available for operations
Disbursements for operations (51,000) (61,000) (40,000)
Ending cash before borrowings or replacements
Short-term finance:
New loans
Repayments
Interest
Cash balance, ending

Answer 1

To complete the short-term financing section of the cash budget, consider the loans, repayments, and interest. In November, a new loan of $8,000 is needed, resulting in an ending cash balance of $12,000. In December, no new loan is needed and the ending cash balance is $41,000.

Step-by-step explanation:

To complete the short-term financing section of the cash budget and fill in the missing figures, you need to consider the loans, repayments, and interest.

The starting cash balance is $24,0005. For October, there are no new loans, repayments, or interest, so the cash balance remains the same at $24,0005.

For November, a new loan of $1,000 is obtained at the start of the month to maintain a minimum end-of-month balance of $12,000. The cash available for operations is $41,000 (collection on sales) minus $61,000 (disbursements for operations), which equals -$20,000. Since the cash balance needs to be at least $12,000, a new loan of $8,000 is needed. The ending cash balance is $12,000.

For December, a new loan of $1,000 is obtained at the start of the month to maintain a minimum end-of-month balance of $12,000. The cash available for operations is $81,000 (collection on sales) minus $40,000 (disbursements for operations), which equals $41,000. No new loan is needed since the cash available is sufficient to maintain the minimum balance. The ending cash balance is $41,000.

Answer 2

Holidays Events

Cash Budget

October November December Total

Cash balance, beginning $24,000 $12,000 $12,000 $24,000

Collection on sales 36,000 41,000 81,000 158,000

Cash available for operations $60,000 $53,000 $93,000 $182,000

Disbursements for operations (51,000) (61,000) (40,000) (152,000)

Ending cash before borrowings

or repayments $9,000 ($8,000) $53,000 $30,000

Short-term finance:

New loans 3,000 20,000 23,000

Repayments (23,260) (23,260)

Interest 30 230 0

Cash balance, ending $12,000 $12,000 $29,740 $29,740

Step-by-step explanation:

a) Data and Calculations;

Loans obtained in increments of $1,000

Minimum end-of-month balance = $12,000

Simple Interest rate = 1% per month

Cash Budget

October November December Total

Cash balance, beginning $24,000 $12,000 $12,000 $24,000

Collection on sales 36,000 41,000 81,000 158,000

Cash available for operations $60,000 $53,000 $93,000 $182,000

Disbursements for operations (51,000) (61,000) (40,000) (152,000)

Ending cash before borrowings

or repayments

Short-term finance:

New loans

Repayments

Interest

Cash balance, ending

b) Holidays' Cash Budget is a Schedule that estimates the cash inflows and outflows during a period of its financial cycle. The purpose of preparing one is to determine availability of cash for continuing operational activities. In addition, the Cash Budget shows when Holidays needs to borrow cash to continue operations. Excess cash is also determined from the Cash Budget for investment purposes.