On January 1, Matzke Company has a beginning cash balance of $63,000. During the year, the company expects cash disbursements of $510,000 and cash receipts of $435,000. If Matzke requires an ending cash balance of $60,000, Matzke Company must borrow
A) $48,000.
B) $60,000.
C) $72,000.
D) $138,000.

Question

Quizplus · Accepted Answer

To calculate the amount of cash that Matzke Company must borrow, we need to use the formula:

Ending cash balance = Beginning cash balance + Cash receipts - Cash disbursements +/- Borrowings or repayments

Plugging in the given values, we have:

$60,000 = $63,000 + $435,000 - $510,000 - Borrowings or repayments

Solving for Borrowings or repayments, we get:

Borrowings or repayments = $60,000 - $63,000 + $435,000 - $510,000
Borrowings or repayments = -$78,000

Since the result is negative, it means that Matzke Company needs to borrow money to meet its ending cash balance requirement of $60,000. The amount it needs to borrow is the absolute value of the result, which is $78,000. However, since the question is asking for the amount that Matzke Company must borrow (not the absolute value), we need to choose the answer that represents that amount, which is C) $72,000 (the closest to $78,000).

On January 1, Matzke Company Has a Beginning Cash Balance