Buster's had a beginning cash balance of $2,780 for the quarter. During the quarter, the firm had cash collections of $41,309, wages and other cash expenses of $18,800, payments on account of $21,308, and dividends paid of $1,200. The beginning short-term debt is $6,800 with a quarterly interest rate of 2 percent. The firm just adopted a new policy which sets the minimum cash balance at $600. At quarter end, the cumulative surplus (deficit) is and the ending short-term debt is .

Cash Surplus is $2,181.

Ending short-term debt is $6,936

Explanation:

The cash surplus and ending short term are obtained as follows:

1. Buster's Cash Account for the Quarter

Beginning cash balance                       $2,780

Cash collected                                      $41,309

Wages and other cash expenses       ($18,800)

Payments on account                          ($21,308)

Dividends paid                                       ($1,200)

Total cash balance                                   $2,781  

Note that figures in brackets indicate minus/deduction.

Therefore, total cash balance is divided into:

Ending cash balance                                $600

Cash Surplus                                           $2,181

Cash balance                                         $2,781                        

2. Calculation of Short Term Debt Balance for the Quarter

Beginning short-term debt                    $6,800

Interest ($6,800 × 2%)                              $136

Ending short-term debt                         $6,936                

Note:

Note that the interest amount of $136 is added to the beginning short term debt to obtain the ending short term because it is not stated in the question that it was paid during the quarter. Had it been was paid during the quarter, the ending short term debt will be the same as opening amount of $6,800 while cash cash surplus and cash balance will reduce by $136.

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