Adams Medical Clinic has budgeted the following cash flows.
January February March
Cash receipts $120,000 $116,000 $136,000
Cash payments
For inventory purchases 110,000 82,000 95,000
For S&A expenses 31,000 32,000 27,000
Adams Medical had a cash balance of $8,500 on January 1. The company desires to maintain a cash cushion of $6,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 2 percent per month. Repayments may be made in any amount available. Adams pays its vendors on the last day of the month also. The company had a monthly $40,000 beginning balance in its line of credit liability account from this year’s quarterly results.
1. Prepare a cash budget.2. What is the borrowing (replacement) and interest for January, February, and March?