Question

Western Company is preparing a cash budget for June. The company has $11,800 cash at the beginning of June and anticipates $30,200 in cash receipts and $34,900 in cash disbursements 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 owes $15,000 to the bank. To maintain the $10,000 required balance, during June the company must: Multiple Choice Borrow $2,900. Repay $2,900. Borrow $10,000. Repay $7,100. Borrow $4,700.

Answer 1

Answer: Borrow $2900

Step-by-step explanation:

To maintain the $10,000 required balance, during June the amount that the company must borrow will be calculated thus:

Firstly, the ending cash balance without considering borrowings will be:

= Beginning balance + Receipts - Disbursements

= $11800 + $30200 - $34900

= $7100

Therefore, to maintain the $10,000 required balance, during June the company must borrow:

= $10000 - $7100

= $2900

The company must borrow $2900