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19 October, 17:12

Sparks Corporation has a cash balance of $14,700 on April 1. The company must maintain a minimum cash balance of $12,000. During April, expected cash receipts are $60,000. Cash disbursements during the month are expected to total $70,000. Ignoring interest payments, during April the company will need to borrow:

a. $4,700

b. $7,300

c. $12,000

d. $10,000

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Answers (2)
  1. 19 October, 18:39
    0
    B: $7,300

    Explanation:

    Cash Balance 1 April $ 14,700

    Add: Cash Receipts $ 60,000

    Less: Cash Payments $ (70,000)

    Net Cash Balance $ 4,700 A

    Amount to Borrow $ 7,300 C

    Minimum Cash balance $ 12,000 B

    B-A = C.

    i. e $12,000 - $ 4,700 = $ 7,300
  2. 19 October, 19:02
    0
    The correct option is B,$7,300

    Explanation:

    The amount the company needs to borrow can be ascertained from a cash plan drawn up below based on the expected cash inflows and outflows in the month as well as the envisaged closing cash balance.

    Opening cash balance $14,700

    cash receipts $60,000

    total available cash $74,700

    expected cash outflows $70,000

    Expected closing balance$12,000

    Total $82,000

    The total cash requirement of $82,000 is more than the available cash of $74,700 by $7,300 ($82,000-$74,700)

    The amount of borrowing required is $7,300 as shown in the computation above.
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