Western Company is preparing a cash budget for June. The company has $11,000 cas

Question

Western Company is preparing a cash budget for June. The company has $11,000 cash at the beginning of June and anticipates $31,000 in cash receipts and $36,500 in cash disbursements 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 owes $15,000 to the bank. To maintain the $10,000 required balance, during June the company must:

Repay $4,500.

Borrow $5,500.

Repay $5,500.

Borrow $4,500.

Borrow $10,000.

Western Company is preparing a cash budget for June. The company has $11,000 cash at the beginning of June and anticipates $31,000 in cash receipts and $36,500 in cash disbursements 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 owes $15,000 to the bank. To maintain the $10,000 required balance, during June the company must:

Explanation / Answer

Ending balance=Beginning balance+Cash receipts-Cash disbursements

=(11000+31000-36500)=$5500

Hence company must borrow=(10000-5500)=$4500(D)

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