Question

Karim Corp. requires a minimum \(8,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is \)8,400, and the company has no outstanding loans. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow. Prepare a cash budget for July, August, and September. (Round interest payments to the nearest whole dollar.)

Short answer

The amount of cash at the end of July, August and September will be $8,000, $8,000 and $14,207.

Step-by-step solution

Introduction

Additional loan is the amount of loan an organization borrows in the middle of the financial year to meet its cash requirements.

Cash budget

Karim Corp
Cash budget
For the month of July, August and September
Particulars	July	August	September
Beginning cash balance	$8,400	$8,000	$8,000
Add: Cash receipts	$20,000	$26,000	$40,000
Total cash available	$28,400	$34,000	$48,000
Less: Cash payments	$28,000	$30,000	$22,000
Less: Interest payments	-	$76	$117
Preliminary cash balance	$400	$3,924	$25,883
Loan	$7,600	$4,076	($11,676)
Ending cash balance	$8,000	$8,000	$14,207
Loan balance
Loan balance at the beginning	$0	$7,600	$11,676
Additional loan	$7,600	$4,076	($11,676)