AAA Company is preparing its 3rd quarter budget and provides the following data:
$\begin{array}{|l|r|r|r|}
\hline& \text { Jul } & \text { Aug } & \text { Sep } \
\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \
\hline \text { Cash payments: } & & & \\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \
\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \
\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\
\hline
\end{array}$
Cash balance at June 30 is projected to be $4,000. The company is required to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and pays interest monthly at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. Loan balance should be repaid in increments of $5,000 when there is surplus cash.
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How much cash shortfall will the company have at the end of July, before financing?

Question

AAA Company is preparing its 3rd quarter budget and provides the following data:
$\begin{array}{|l|r|r|r|} 
\hline& \text { Jul } & \text { Aug } & \text { Sep } \
\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \
\hline \text { Cash payments: } & & & \\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \
\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \
\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\
\hline
\end{array}$
Cash balance at June 30 is projected to be $4,000. The company is required to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and pays interest monthly at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. Loan balance should be repaid in increments of $5,000 when there is surplus cash.
-
How much cash shortfall will the company have at the end of July, before financing?

Quizplus · Accepted Answer

The cash shortfall at the end of July, before financing, is calculated as follows:- Starting cash balance: $4,000- Cash collections in July: $50,000- Cash payments in July: Purchases of inventory ($31,000) + Operating expenses ($12,000) + Capital expenditures ($13,000) = $56,000- Ending cash balance before financing: $4,000 + $50,000 - $56,000 = -$2,000Thus, the cash shortfall is $2,000.

AAA Company Is Preparing Its 3rd Quarter Budget and Provides