California Day Care Centers (CDCC) is a partnership between local not-for-profit organizations and state and local governments whose mission is to provide quality affordable day care for children so that both parents (or other family members or guardians) are free to contribute their full-fledged services to the local, state and national economies. CDCC receives funding from state and local governments and charges families reduced fees to care for their children at their centers.
CDCC budgets the following revenue, expense and cash items related to its operations in the months of April and May:
CDCC expects to serve 900 children in April and 1,000 children in May.
For each child served, revenues and support are budgeted as follows:
– Families are charged a $250 monthly fee which they pay in full at the beginning of each month.
– CDCC bills the state $300 per child each month and collects the entire $300 one month after the billing.
– CDCC bills the local government (i.e. the California county in which the facility operates) $500 per child each month and collects $100 during the month of the billing and the remaining $400 during the next month.
– CDCC expects to receive a $100,000 cash donation from a child-care foundation in May.
Expenses and expenditures during the month of May are as follows:
Staff salaries expense: $425,000
Cost of food expense: $175,000
Insurance expense: $100,000
Cash paid for staff salaries: $275,000
Cash paid for food: $135,000
Cash paid for insurance: $15,000
Depreciation expense for equipment and facility: $30,000
CDCC will purchase new computers for a total of $750,000. Note: Depreciation on these computers is accounted for in the $30,000 depreciation expense above.
CDCC’s May cash budget shows a beginning cash balance for the month of $130,000.
a. Prepare CDCC’s operating budget for the month of May using the accrual accounting method. Include all appropriate subtotals.
b. Briefly explain why CDCC does not budget any tax expense or tax payments for May.
c. Briefly explain why expense amounts for staff salaries, cost of food, and insurance ($425,000, $175,000 and $100,000, respectively) all differ from their corresponding cash payment amounts ($275,000, $135,000, and $15,000, respectively).
d. Prepare CDCC’s cash budget for the month of May. Include all appropriate subtotals.
e. Suppose CDCC requires its end-of-month cash balance to be at least $50,000. Based on the cash budget prepared in d., how much money would CDCC need to borrow to satisfy this requirement for May?
f. Suppose instead that CDCC requires its end-of-month cash balance to be at least $30,000. Based on the cash budget prepared in d., how much loan principal would CDCC be able to repay in May?
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