Question

Tomo, Inc. has prepared its third quarter budget and provided the following data:: Jul Aug SepCash collections $50,000 $39,600 $46,100Cash payments: Purchases of direct materials 30,000 21,700 17,600Operating expenses 12,300 8,000 11,600Capital expenditures 13,700 24,300 0The cash balance on June 30 is projected to be $4500. The company has to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 whenever there is surplus cash. How much will the company have to borrow at the end of July?

Answer 1

Tomo, Inc. will need to borrow $6,500 at the end of July.

Step-by-step explanation:

To determine how much Tomo, Inc. needs to borrow at the end of July, we need to subtract the cash collections and cash payments for July from the projected cash balance on June 30. If the result is less than the minimum cash balance of $5,000, the company will need to borrow enough money to make up the difference. In this case, the projected cash balance on June 30 is $4,500, and the cash collections for July are $50,000. The cash payments for July are $30,000 for purchases of direct materials, $12,300 for operating expenses, and $13,700 for capital expenditures.

Therefore, the cash balance at the end of July would be $4,500 + $50,000 - $30,000 - $12,300 - $13,700 = $-1,500. Since this is less than the minimum cash balance of $5,000, Tomo, Inc. will need to borrow $6,500 at the end of July.

Answer 2

The firm will needto borrow 6,500 to achieve their minimum cahs balance and pay their budgeted expenditures

Step-by-step explanation:

July

beginning $ 4,500

receipts $ 50,000

disbursement+ $ (56,000)*

subtotal $ (1,500)

minimun $5,000

Financing needs: 5000 - (-1500) = 6,500

payment/loan $6,500

*sum of cash payment for purchase of materials, operating expenses and capital expenditures