Question

Sparks Corporation has a cash balance of $18,000 on April 1. The company must maintain a minimum cash balance of $10,000. During April, expected cash receipts are $98,000. Cash disbursements during the month are expected to total $112,000. Ignoring interest payments, during April the company will need to borrow:

Answer 1

Answer:

To maintain a cash balance of $10,000, Spark corporation must borrow $6,000.

Explanation:

Given

Cash balance on April 1 = $18,000

Minimum cash balance = $10,000

Cash receipts = $98,000.

Cash disbursements = $112,000

First, we need to calculate the ending cash balance;

Beginning Cash Balance $18,000

Add: Cash Receipts $98,000

Less: Cash Disbursements ($112,000)

Ending Cash Balance = $4,000

Ending Cash Balance = Beginning Cash Balance + Cash Receipts - Cash Disbursements

Ending Cash Balance = $18,000 + $98,000 - $112,000

Ending Cash Balance = $4,000

To maintain a cash balance of $10,000, Spark corporation must borrow:-

Let x represent the amount to borrow

x + $10,000 = $4000 --- Make x the subject of formula

x = $4,000 - $10,000

x = -$6,000

To maintain a cash balance of $10,000, Spark corporation must borrow $6,000.

The negative sign represents account deficit

Answer 2

Answer:

During April the company will need to borrow $6,000

Explanation:

The company has a cash balance of $18,000 on April 1.

During the month, expected cash receipts are $98,000 and Cash disbursements are expected to total $112,000.

If Sparks Corporation does not borrow cash,

Cash balance on April 30 = $18,000 + $98,000 - $112,000 = $4,000

The company must maintain a minimum cash balance of $10,000, therefore,

Sparks will need to borrow: $10,000 - $4,000 = $6,000