Question

Hilliard Company budgeted the following transactions for April 2014: Picture The beginning cash balance was $50,000. The company desires to have a $25,000 ending cash balance. What is the amount of the cash surplus or shortage?

a.$40,000 surplus
b. $40,000 shortage
c. $20,000 shortage
d. There is no surplus or shortage.

Answer 1

The correct option is C

Step-by-step explanation:

Computing budgeted cash flow as:

Total cash available during the month = Opening cash balance + Cash income from revenue

= $50,000 + (75% of sales)

= $50,000 + (75% × $200,000)

= $50,000 + $150,000

= $200,000

Balance available = Total cash available during the month - Budgeted expense

= Total cash available during the month - ( Operating expense + Payment of debts + Purchase of investment)

= $200,000 - ($105,000 + $15,000 + $75,000)

= $200,000 - $195,000

= $5,000

Cash shortfall or shortage = Desired balance - Available balance

= $25,000 - $5,000

= $20,000 shortage