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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.$20,000$25,000$5,000

Question

Madison Corporation's expected beginning cash balance is 35,000.Cashcollectionsarebudgetedat35,000. Cash collections are budgeted at 50,000 and cash disbursements are estimated to be 80,000.Theminimumrequiredcashbalanceis80,000. The minimum required cash balance is 20,000 and the company can borrow as much as needed in increments of 10,000.Calculatetheexpectedendingcashbalanceforthemonth.Multiplechoicequestion.10,000. Calculate the expected ending cash balance for the month.Multiple choice question.20,00025,00025,0005,000

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Solution

To calculate the expected ending cash balance for the month, follow these steps:

  1. Start with the beginning cash balance: $35,000
  2. Add the cash collections: 35,000+35,000 + 50,000 = $85,000
  3. Subtract the cash disbursements: 85,000−85,000 - 80,000 = $5,000

So, before considering the minimum required cash balance, the expected ending cash balance would be $5,000.

However, the company has a policy of maintaining a minimum cash balance of 20,000.Ifthecashbalancefallsbelowthis,thecompanyborrowsinincrementsof20,000. If the cash balance falls below this, the company borrows in increments of 10,000.

In this case, the company's cash balance is 15,000shortoftheminimumrequiredbalance(15,000 short of the minimum required balance (20,000 - 5,000=5,000 = 15,000). Therefore, the company will need to borrow 20,000(sinceitmustborrowinincrementsof20,000 (since it must borrow in increments of 10,000 and $10,000 would not be enough to cover the shortfall).

So, the final expected ending cash balance, after borrowing, would be: 5,000+5,000 + 20,000 = $25,000.

Therefore, the correct answer is $25,000.

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