Question

The following informationis drawn from Royal Industries cash budget

Cash Receipts 40,000

Beg, Cash Bal. 10,000

Cash payment 48,000

Desired ending cash cushion 5,000

If there is a cash shortage, the company borrows money. if a surplus occurs funds are used to repay loans or ot invest in short-term assests. The company had no debt before January 1st. The amounted "needed" to borrow or the amount "available" for repayment of debt in Januar would be

a. 2000 available

b. 3,000 needed

c. 7000 available

d 13,000 needed

If there is a cash shortage, the company borrows money. If a surplus occurs funds are used to repay loans or to invest in short-term assests. All borrowing, repayments, and interest payments occur on the last day of themonth. The interest rate is 1% per month. The amount of interest expense incurred for January is:

a. 20

b. $30

c. $50

d. None of the aove

B. the amount of interest paid in February would be

a. $50

b. $300

c. $500

d. $30

Answer 1

b. 3,000 needed

d. None of the above

d. $30

Step-by-step explanation:

The computation is shown below:

For borrowed amount

= Beginning cash balance + expected cash receipts - expected cash disbursements - minimum monthly cash balance

= $10,000 + $40,000 - $48,000 - $5,000

= -$3,000

The amount of interest expense incurred for January is NIL as the amount i.e borrowed is for the end month of January. Moreover, the interest expense is paid on the month of February

And for the interest paid in February is

= $3,000 × 1%

= $30