Question

Western Company is preparing a cash budget for June. The company has $10,600 in cash at the beginning of June and anticipates $31,400 in cash receipts and $37,300 in cash payments 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 has no loans outstanding. To maintain the $10,000 required balance, during June the company must:

a. Borrow $5,300.

b. Repay $4,900.

c. Borrow $10,000.

d. Repay $5,100.

e. Borrow $4,900.

Answer 1

$5,300

Step-by-step explanation:

The computation of maintained balance is shown below:-

Total amount = Opening Balance + Cash Receipts - Cash Disbursement

= $10,600 + $31,400 - $37,300

= $42,000 - $37,300

= $4,700

In order to maintain a balance of $10,000, it needs to borrow = $10,000 - $4,700

= $5,300

Therefore to maintain a balance of $10,000, it needs to borrow $5,300