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10 September, 04:11

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. Knowledge Check 01 How much cash will the company need to borrow?

a. $15,000

b. $25,000

c. $30,000

d. $40,000

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  1. 10 September, 04:18
    0
    The correct option is B, $25000

    Explanation:

    The amount that needs to be borrowed is the cash shortfall which is the difference between cash balance calculated considering the present opening cash balance, the cash receipt and disbursement and the budgeted cash balance of $40000

    The cash balance now is opening cash balance plus expected cash receipt less expected cash disbursement

    Opening cash balance $5000

    Cash receipt $80000

    cash disbursement ($70,000)

    Cash balance $15,000

    Budgeted cash balance $40,000

    actual cash balance ($15,000)

    borrowing $25,000
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