Below are the forecasted cash receipts and cash payments for Kaden Company for the first four months of the year.

January February March April

Budgeted cash collections 100,000 80,000 75,000 146,000

Budgeted cash payments:

Operating expenses 127,000 105,000 92,000 120,000

Dividends 0 20,000 0 0

Equipment purchase 0 40,000 0 0

Total budgeted cash payments 127,000 165,000 92,000 120,000

On January 1, Kaden Company had a cash balance of $50,000. Kaden has a policy of maintaining a cash balance of at least $10,000 at the end of each month.

Required:

1. How much must Kaden Company plan to borrow in March?

a. $14,000b. $24,000c. $17,000d. $4,000e. $7,000

Option (c) is correct.

Explanation:

January:

Total cash available:

= cash balance at beginning - Budgeted cash collections

= $50,000 + $100,000

= $150,000

Total cash payments (budgeted cash payments) = $127,000

Closing cash balance:

= Total cash available - Total cash payments + Borrowings

= $150,000 - $127,000 + $0

= $23,000

February:

Total cash available:

= cash balance at beginning - Budgeted cash collections

= $23,000 + $80,000

= $103,000

Total cash payments (budgeted cash payments) = $165,000

Closing cash balance = Total cash available - Total cash payments + Borrowings

$10,000 = $103,000 - $165,000 + Borrowings

Borrowings = $175,000 - $103,000

= $72,000

March:

Total cash available:

= cash balance at beginning - Budgeted cash collections

= $10,000 + $75,000

= $85,000

Total cash payments (budgeted cash payments) = $92,000

Closing cash balance = Total cash available - Total cash payments + Borrowings

$10,000 = $85,000 - $92,000 + Borrowings

Borrowings = $102,000 - $85,000

= $17,000