Johnson company is preparing a cash budget for June. The company has $12,000 cas

Question

Johnson company is preparing a cash budget for June. The company has $12,000 cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash disbursements during June. Johnson company has an agreement with its bank to maintain a cash balance of at least $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:

A) Borrow $4,500
B) Borrow $2,500
C) Borrow $10,000
D) Repay $7,500
E) Repay $2,500
Please show calculations

Explanation / Answer

12,000+ 30,000-34,500= 7,500 ending cash balance. So (B) it must borrow 2,500 to get to the required 10,000.

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