Create a Cash Budget for January, February, and March
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem Cash Budget
It is annual budget preparation time and the accounting team at Drusilla Inc is preparing the
cash budget for the months of January, February, and March. The company has established
a $250,000 line of credit with its bank at a 10% annual rate of interest on which borrowings
for cash deficits must be made in $1,000 increments. There will not be an outstanding
balance on the line of credit loan on December 31, and December 31st cash balance will be
$125,000. Principle repayments are to be made in any month in which there is a surplus of
cash. Interest is to be paid monthly. Drusilla intends to maintain a minimum balance of
$125,000 at the end of each month by either borrowing for deficits below the minimum
balance or repaying the loan balance with excess cash. Expected monthly collection and
disbursement patterns are shown below:
*Collections: 40% of the current month's sales budget and 60% of the previous month's
sales budget.
*Accounts Payable Disbursements: 15% of the current month's accounts payable budget
and 85% of the previous month's accounts payable budget.
*All other disbursements occur in the month in which they are budgeted
Budget Information
February
$70,000
$12,000
$35,000
$30,000
December
January
$75,000
$15,000
$40,000
$35,000
March
Sales
Accounts Payable
Payroll
|Other Disbursements
$100,000
$20,000
$50,000
$25,000
$100,000
$20,000
$50,000
$11,000
Create a Cash Budget for January, February, and March
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