Question

Sparks Corporation has a cash balance of $14,100 on April 1. The company must maintain a minimum cash balance of $11,500. During April, expected cash receipts are $59,000. Cash disbursements during the month are expected to total $68,500. Ignoring interest payments, during April the company will need to borrow:

Answer 1

$6,900

Step-by-step explanation:

The amount of cash the company will need to borrow is dependent on the closing balance and the minimum cash balance the company must maintain.

The closing cash balance is the sum of the opening balance and the net movement in cash during the month. The net movement in cash is the difference between the cash receipts and the cash payments.

Closing cash balance = $14,100 + $59,000 - $68,500

= $4600

Amount to be borrowed = $11,500 - $4,600

= $6,900