Question

Karim Corp. requires a minimum $8,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is $8,400 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) are:

July August September
Cash receipts $ 20,000 $ 26,000 $ 40,000
Cash disbursements 28,000 30,000 22,000

Answer 1

July August Sept.

Beginning cash balance $8,400 $8,000 $8,000

Cash receipts $20,000 $26,000 $40,000

Cash disbursements ($28,000) ($30,000) ($22,000)

Sub-total $400 $4,000 $26,000

Interests $0 ($72) ($113*)

Loan $7,200 $4,072 ($11,272)

Total $8,000 $8,000 $14,615

*Rounded to the nearest dollar