4. At May 31, Holiday\'s cash balance is $10,000. Selling and administrative exp

Question

4. At May 31, Holiday's cash balance is $10,000. Selling and administrative expenses (in addition to supplies) are budgeted to equal $45,000 for June and are payable in cash by June 30. Holiday has a line of credit that enables the agency to borrow funds on demand; however, they may only be borrowed on the last day of the month. In other words, Holiday must borrow funds needed during June on May 31. Holiday desires to maintain a $10,000 cash balance in its account. Considering all of the facts presented above, how much should Holiday plan to borrow on May 31?

Explanation / Answer

The amount needed for payment of selling and administrative expenses to be made on June 30 and the amount needed for ending balance has to borrowed on May 31 as Holiday must borrow funds needed during June on May 31

Amount Holiday should paln to borrow on May 31 = Selling and administrative expenses to be paid on June 30 + Desired cash balance - Holiday's cash balance on May 31

= $45,000 + $10,000 - $10,000

= $45,000

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