Zhang Manufacturing produces a variety of industrial valves. The company is preparing its cash budget for the upcoming third quarter. The following transactions are expected to occur:
a. Cash collections from sales in July, August, and September are projected to be $93,000, $158,000, and $120,000 respectively.
b. Cash payments for the upcoming third quarter are projected to be $143,000 in July, $108,000 in August, and $132,000 in September.
c. The cash balance as of the first day of the third quarter is projected to be $34,000.
Zhang Manufacturing has a policy that it must maintain a minimum cash balance of $27,000. The company has a line of credit with the local bank that allows it to borrow funds in months that it would not otherwise have a minimum balance of $27,000. If the company has more than $27,000 at the end of any given month, it uses the excess funds to pay off any outstanding line of credit balance. Each month, Zhang Manufacturing pays interest on the prior month’s line of credit ending balance. The actual interest rate floats since it is tied to the prime rate. However, the interest rate paid during the budget period is expected to be 1% of the prior month’s line of credit ending balance (if it did not have an outstanding balance at the end of the prior month, then Zhang Manufacturing does not have to pay any interest). All line of credit borrowings are taken or paid off on the first day of the month. As of the first day of the third quarter, Zhang Manufacturing did not have a balance on its line of credit.
Prepare a combined cash budget for Zhang Manufacturing for the third quarter, with a column for each month and for the quarter total.

  • CreatedApril 30, 2015
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