Hilliard Company budgeted the following transactions for April Year 2: $\begin{array}{|l|r|}
\hline \text { Sales (75\% collected in month of sale) } & \$ 200,000 \
\hline \text { Cash Operating Expenses } & 105,000 \
\hline \text { Cash Purchases of Investments } & 75,000 \
\hline \text { Cash Payment of Debt } & 15,000 \
\hline \text { Depreciation on Operating Assets } & 12,000\
\hline
\end{array}$ The beginning cash balance was $50,000.The company desires to have a $25,000 ending cash balance.The surplus (or shortage)of cash before considering any financing activities (that is,borrowings or repayments)during in April would be:
A) $40,000 surplus.
B) $40,000 shortage.
C) $20,000 shortage.
D) There is no cash surplus or shortage.

Question

Quizplus · Accepted Answer

The cash inflows are 75% of sales, which is $150,000 (75% of $200,000). The cash outflows are $105,000 (operating expenses) + $75,000 (investments) + $15,000 (debt payment) = $195,000. The beginning cash balance is $50,000. Therefore, the cash position before financing is $50,000 + $150,000 - $195,000 = $5,000. To achieve the desired ending balance of $25,000, there is a shortage of $20,000.

Hilliard Company Budgeted the Following Transactions for April Year 2