John's Sporting Goods is preparing its annual cash budget, showing quarterly data, for 2011. A $20,000 cash balance is desired at the end of each quarter. Borrowings and repayments are in $1,000 increments at 12% annual interest. The company borrows at the beginning of a quarter based on the estimated deficiency. Interest is paid only when principal is repaid at the end of a quarter with excess cash. The maximum amount of principal was repaid in the second quarter. The cash balance on December 31, 2010 is $21,000. Total receipts and disbursements, other than borrowings and principal or interest payments, are estimated at:
- Quarter 1 Quarter 2 Quarter 3 Quarter 4
- Disbursements: $226,000 $226,000 $244,000 $260,000
- Receipts: 216,000 230,000 245,000 253,000
Instructions: Prepare a schedule of estimated borrowings and repayments of principal and interest for 2008 and its quarters. This is what I came up with (I'm not sure if it is correct):
- John's Sporting Goods
- Schedule of Expected Collections from Customers
- For the Year Ending December 31, 2011
- 1 2 3 4
- Beginning Cash 21,000 20,000 20,000 20,000
- Add: receipts 216,000 230,000 245,000 253,000
Total available
cash 237,000 250,000 265,000 273,000
Less: Distributions 226,000 226,000 244,000 260,000
Excess of available
cash over 11,000 24,000 21,000 13,000
Financing
Borrowing 9,000 0 0 7,000
Repayments 0 4,000 1,000 0
Ending Cash
Balance 20,000 20,000 20,000 20,000