Kara Corporation has the following sales forecasts for the selected three-month period:
$$\begin{array} { l l }
\text { Month } & \text { sales } \
\hline \text { July } & \$24,000 \
\text { August } & 14,000 \
\text { September } & 16,000
\end{array}$$ Seventy percent of sales are collected in the month of the sale,and the remainder are collected in the following month.
$$\begin{array} { l r }
\text { Accounts recervable balance (July 1) } &\$20,000\
\text { Cash balance (July 1) } & 10,0000
\end{array}$$ Minimum cash balance is $10,000.Cash can be borrowed in $1,000 increments from the local bank (assume no interest charges).
-Refer to the figure.What is the cash balance at the end of July,assuming that cash is received only from customers and that $40,000 is paid out during April?
A)$6,800
B)$10,800
C)$16,800
D)$20,000

Question

Kara Corporation has the following sales forecasts for the selected three-month period:
$$\begin{array} { l l } 
\text { Month } & \text { sales } \
\hline \text { July } & \$24,000 \
\text { August } & 14,000 \
\text { September } & 16,000
\end{array}$$ Seventy percent of sales are collected in the month of the sale,and the remainder are collected in the following month.
 $$\begin{array} { l r } 
\text { Accounts recervable balance (July 1) } &\$20,000\
\text { Cash balance (July 1) } & 10,0000
\end{array}$$ Minimum cash balance is $10,000.Cash can be borrowed in $1,000 increments from the local bank (assume no interest charges).
-Refer to the figure.What is the cash balance at the end of July,assuming that cash is received only from customers and that $40,000 is paid out during April?
A)$6,800
B)$10,800
C)$16,800
D)$20,000

Quizplus · Accepted Answer

Cash collections in July include 70% of July sales and 30% of June's accounts receivable. July sales are $24,000, so 70% of that is $16,800. The accounts receivable balance from June (for simplicity, assume this is from sales in June) is $20,000, so 30% of that is $6,000. Total cash collections in July are $16,800 (from July sales) + $6,000 (from June's accounts receivable) = $22,800. Starting with a cash balance of $10,000 and adding the $22,800 collected, gives $32,800 before payments. After paying out $40,000, the cash balance would be $32,800 - $40,000 = -$7,200. However, since the minimum cash balance is $10,000, the company must borrow enough to cover the deficit and maintain the minimum. To reach a $10,000 balance after covering the deficit, the company needs to borrow $17,200 ($10,000 minimum balance - $7,200 deficit). Therefore, the ending cash balance, after borrowing, is $10,000, which is maintained as the minimum required balance. The correct answer is based on the premise of maintaining the minimum cash balance, but there seems to be a misunderstanding in the calculation process, leading to the selection of an incorrect option. The correct calculation should focus on the actual cash flow, including collections and payments, and the necessity to borrow to maintain the minimum balance.

Kara Corporation Has the Following Sales Forecasts for the Selected