Question

Company requires a minimum cash balance of $ 3,100. When the company expects a cash​ deficiency, it borrows the exact amount required on the first of the month. Expected excess cash is used to repay any amounts owed. Interest owed from the previous​ month's principal balance is paid on the first of the month at 14​% per year. The company has already completed the budgeting process for the first quarter for cash receipts and cash payments for all expenses except interest. Hoppy does not have any outstanding debt on January 1. Complete the cash budget for the first quarter for Hoppy Company. Round interest expense to the nearest whole dollar. Begin by preparing the cash budget for January​, then prepare the cash budget for February and March. ​Finally, prepare the totals for the quarter. ​(Complete all answer boxes. Enter a​ "0" for any zero balances. Round all amounts entered into the cash budget to the nearest whole dollar.

Answer 1

January February March Total

Beginning Cash Balance 3,100 3,100 3,100 9,300

Cash Receipts 22,500 28,000 42,500 93,000

Cash Available 25,600 31,100 45,600 102,300

Cash Payments:

All Expenses except interest 32,000 33,000 38,000 103,000

Interest 0 87 134 221

Total Cash Payments 32,000 33,087 38,134 103,221

Ending Cash Balance before (6,400) (1,987) 7,466 (921)

Financing

Minimum Cash Balance Desired (3,100) (3,100) (3,100) (9,300)

Projected Cash Excess (Deficiency) (9,500) (5,087) 4,366 (10,221)

Financing:

Borrowing 9,500 5,087 - 14,587

Principal Payments 0 0 (4,366) (4,366)

Total effects of Financing 9,500 5,087 (4,366) 10,221

Ending Cash Available 3,100 3,100 3,100 9,300

It is mentioned that the company will raise the exact amount of deficiency at the beginning of next month so any deficiency in January will be raised on 1st of February and any excess cash will be used to repay the principal amount.

Interest = Amount raised * Rate * Month

Interest due in Feb. = 9,500(Raised) * 14% * 1/12 months

Interest due in Feb. = 9,500(Raised) * 0.14 * 1/12 months = $110.83

Interest Due in March = (9,500+5,087) * 14% * 1/12 months

Interest Due in March = 14,587 * 0.14 * 0.083 months = $169.5