Question

Karim Corp. requires a minimum $9,900 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 $10,300 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 $25,900 $33,900 $41,900
Cash payments 30,850 31,900 33,900
Prepare a cash budget for July, August, and September.

Answer 1

Answer:

                                              Karim Corp.

                                             Cash Budget

                                For July, August and September

                                                     JULY$       AUGUST$     SEPTEMBER$

Beginning cash balance              10,300        9,900           9,900

Cash receipts                                 25,900       33,900         41,900

Total cash available                    36,200         43,800         51,800

Cash payment                               30,850          31,900         33,900

Interest on bank loan                    0                    91                  53

Preliminary cash balance              5,350           11,809           17,847

Additional loan(loan repayment)  4,550            -1,909          -2,641

Ending cash balance                     9,900             9,900         15,206

                                               Loan Balance

Loan balance - Beginning of month    0                 4,550           2,641

Additional loan(loan repayment)       4,550           -1,909          -2,641

Loan balance - End of month            4,550             2,641            0

August Interest on bank loan = 4550 * 2% = $91  

September interest on loan = 2641 * 2% = 52.82 = $53