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

Borrowing require = $2,500

so correct option is d.Borrow $2,500

Step-by-step explanation:

given data

cash at beginning = $12,000

cash receipts anticipates = $30,000

cash payments = $34,500

minimum cash balance = $10,000

required balance = $10,000

to find out

To maintain the $10,000 required balance

solution

we get here cash at the end of the year that is

cash at the end of the year = Beginning cash balance + Cash Receipts - cash payments .................1

cash at the end of the year = $12000 + $30000 - $34500

cash at the end of the year = $7500

and

we know minimum cash balance maintained is $10,000

so Borrowing require is here as

Borrowing require = $10000 - $7500

Borrowing require = $2,500

so correct option is d.Borrow $2,500