Question

Letestu Company has a beginning cash balance on January 1, 2011 of $10,000. Cash collected in January is $100,000 and sales revenue in January is $108,000. Expected disbursements for January for inventory purchases are $45,000 and for selling and administrative expenses are $62,000. Additionally, a dividend payment of $5,000 will be made in January. Letestu maintains a minimum cash balance of $5,000. How much cash will Letestu need to borrow in January in order to meet the minimum balance requirement?

Answer 1

Cash will Letestu need to borrow in January in order to meet the minimum balance requirement is $7,000

Step-by-step explanation:

Cash inflows in January = Cash collected in January = $100,000

Cash outflows in January = Cash paid for inventory purchases + Cash paid for selling and administrative expenses + Dividend payment = $45,000 + $62,000 + $5,000 = $112,000

Without borrowing, Cash balance on January 31, 2011 = $10,000 + $100,000 - $112,000 = -$2,000

Letestu maintains a minimum cash balance of $5,000

Cash will Letestu need to borrow in January = $5,000 + $2,000 = $7,000