Cheyenne Company has budgeted the following information for June: If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before June 1^st. The amount of interest paid on July 1 would be:

Question

Quizplus · Accepted Answer

Projected ending cash balance (before borrowing, if any) = $5,000 + $271,000 - $280,000 = $(4,000)
Borrowing in June = Desired ending cash - Projected ending cash balance (before borrowing, if any)
Borrowing in June = $25,000 - $(4,000) = $25,000 + $4,000 = $29,000
Interest paid on July 1 = Borrowings in June × 1% = $29,000 × 1% = $290

Cheyenne Company Has Budgeted the Following Information for June