Question

On January 1, Ghauri Company has a beginning cash balance of $21,000. During the year, the company expects cash disbursements of $170,000 and cash receipts of $145,000. If Ghauri requires an ending cash balance of $20,000, it must borrow:

a.$46,000
b.$24,000
c.$20,000
d.$16,000

Answer 1

Ghauri Company must borrow $24,000 to reach the required ending cash balance of $20,000. This calculation factors in their beginning cash balance, expected cash receipts, and disbursements throughout the year.

Step-by-step explanation:

To find out how much Ghauri Company must borrow, we need to consider its beginning cash balance, expected cash disbursements and receipts, as well as the required ending cash balance. First, we calculate the projected ending balance before borrowing:

• Beginning cash balance: $21,000
• Add: Cash receipts: $145,000
• Subtract: Cash disbursements: $170,000

The projected cash balance before borrowing would be the beginning balance plus receipts minus disbursements: $21,000 + $145,000 - $170,000 = -$4,000.

Since Ghauri Company requires an ending cash balance of $20,000 and the projected balance is -$4,000, they must borrow $24,000 to reach the desired ending balance.

The correct answer is b. $24,000.