Question

Southland Company is preparing a cash budget for August. The company has $18,100 cash at the beginning of August and anticipates $123,000 in cash receipts and $136,700 in cash payments 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

The options provided are incorrect. The correct answer is given below.

Answer:

The company needs to borrow $5600 to maintain the desired ending balance of $10000

Step-by-step explanation:

To calculate the amount that Southland will need to borrow, we must first calculate the ending cash balance for the month of August. The ending cash balance can be calculated as follows,

Ending balance = Opening balance + Receipts - Payments

Plugging in the values for beginning balance, receipts and payments for the month, we calculate the ending balance to be,

Ending balance = 18100 + 123000 - 136700

Ending balance = $4400

Difference between desired and ending balance = 10000 - 4400 = 5600

So, the company needs to borrow $5600 to maintain the desired ending balance of $10000