Question

Melori Inc. has a current cash balance of $5,000. They have accounts receivable of $3,500, accounts payable of $1,350, and an inventory balance of $4,250. If their bank requires a minimum balance in their cash account of $6,250, how much do they need to use from their line of credit to meet the bank's required balance?

Answer 1

Melori Inc. needs to draw $1,250 from their line of credit to meet the bank's minimum cash balance requirement of $6,250, given their current cash balance of $5,000.

Step-by-step explanation:

The question relates to the requirement of Melori Inc. to meet its bank's minimum cash balance requirement by potentially drawing on its line of credit. To determine how much they need to borrow, we need to calculate the difference between the current cash balance and the bank's required minimum balance.

Calculation:

Melori Inc.'s current cash balance: $5,000
Bank's minimum required balance: $6,250
Shortfall: $6,250 (minimum required) - $5,000 (current balance) = $1,250

Thus, Melori Inc. needs to use $1,250 from their line of credit to meet the bank's minimum cash balance requirement.