Western Company is preparing a cash budget for June. The company has $12,000 in cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 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 $4,500.

b. Borrow $2,500.

c. Borrow $10,000.

d. Repay $7,500.

e. Repay $2,500.

Question

Business

Kian Hancock

5 October, 10:36

Western Company is preparing a cash budget for June. The company has $12,000 in cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 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 $4,500.

b. Borrow $2,500.

c. Borrow $10,000.

d. Repay $7,500.

e. Repay $2,500.

+3

Answers (1)

Know the Answer?

Camryn · Answer 1

b. Borrow $2,500

Explanation:

Preliminary balance = $12,000 + 30,000 - $34,500 = $7,500

Amount to borrow = Minimum cash balance - Preliminary balance = $10,000 - $75,000 = $2,500

Therefore, to maintain the $10,000 required balance, during June the company must $2,500.