Question

Western Company is preparing a cash budget for June. The company has $12,000 in cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash payments during June. Western Company has an agreement with its bank to maintain a minimum cash balance of $10,000. As of May 31, the company has no loans outstanding. To maintain the $10,000 required balance, during June the company must: ____________.A. Repay $2,500. B. Repay S7,500. C. Borrow $4,500. D. Borrow $2,500. E. Borrow $10,000.

Answer 1

D. Borrow $2,500

Step-by-step explanation:

Western Company has total available cash of $42,000 (Beg $12,000 & Cash receipts $30,000) but they have to pay obligation in the amount of $34,500. As a result, it will cause their balance below the maintaining amount. Western should borrow to the bank in the amount of $2,500 and directly credit it to it’s account balance in order to attain the desired maintaining balance.