Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.Multiple choice question.$25,000$5,000$20,000
Question
Madison Corporation's expected beginning cash balance is 50,000 and cash disbursements are estimated to be 20,000 and the company can borrow as much as needed in increments of 25,00020,000
Solution
To calculate the expected ending cash balance for the month, follow these steps:
- Start with the beginning cash balance: $35,000
- Add the cash collections: 50,000 = $85,000
- Subtract the cash disbursements: 80,000 = $5,000
So, before considering the minimum required cash balance and any potential borrowing, the expected ending cash balance would be $5,000.
However, the company has a policy of maintaining a minimum cash balance of $20,000. If the ending balance is less than this, the company will borrow enough to reach this minimum.
In this case, the ending balance of 20,000. The company will need to borrow 10,000. Therefore, the company will need to borrow 10,000 that is not less than $15,000).
So, the final expected ending cash balance for the month, after borrowing, would be: 20,000 = $25,000.
Therefore, the correct answer is $25,000.
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