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ABC Company has a cash balance of $9,000 on April 1. The company must maintain a minimum cash balance of $6,000. During April, expected cash receipts are $45,000. Expected cash disbursements during the month total $52,000. What amount will the company need to borrow during April?Multiple Choice$8,000$6,000$4,000$2,000

Question

ABC Company has a cash balance of 9,000onApril1.Thecompanymustmaintainaminimumcashbalanceof9,000 on April 1. The company must maintain a minimum cash balance of 6,000. During April, expected cash receipts are 45,000.Expectedcashdisbursementsduringthemonthtotal45,000. Expected cash disbursements during the month total 52,000. What amount will the company need to borrow during April?Multiple Choice8,0008,0006,0004,0004,0002,000

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Solution

To find out how much the company needs to borrow, we first need to calculate the cash balance at the end of April.

Step 1: Start with the initial cash balance The company starts with $9,000.

Step 2: Add expected cash receipts The company expects to receive 45,000,soweaddthistotheinitialbalance:45,000, so we add this to the initial balance: 9,000 + 45,000=45,000 = 54,000.

Step 3: Subtract expected cash disbursements The company expects to spend 52,000,sowesubtractthisfromthetotalwecalculatedinstep2:52,000, so we subtract this from the total we calculated in step 2: 54,000 - 52,000=52,000 = 2,000.

Step 4: Compare the final balance with the minimum required balance The company needs to maintain a minimum balance of 6,000.Thefinalbalanceof6,000. The final balance of 2,000 is less than this minimum.

Step 5: Calculate the shortfall The company is short by 6,000−6,000 - 2,000 = $4,000.

So, the company will need to borrow $4,000 during April.

This problem has been solved

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