Question

Southland Company is preparing a cash budget for August. The company has $17,000 cash at the beginning of August and anticipates $120,800 in cash receipts and $134,500 in cash disbursements during August. Southland Company wants to maintain a minimum cash balance of $10,000. To maintain the minimum cash balance of $10,000, the company must borrow:A. $0.B. $10,000.C. $6,700.D. $7,000.E. $27,700.

Answer 1

C. $6,700.

Step-by-step explanation:

First we calculate the net cash flow in August

Estimated cash receipt = $120,800

Estimated cash disbursement = $134,500

Net cash flow= $120,800 inflow - $134,500 outflow = $13,700 outflow

Now calculate the closing cash balance = Opening Cash balance + net cash flow during the period = $17,000 - $13,700 = $3,300

Limit for minimum cash balance = $10,000

Cash need to be borrowed = $10,000 - $3,300 = $6,700

Company need to borrow $6,700 to maintain the cash balance of $10,000