Speedy Runner makes running shoes and they have gathered the following data for the month of October: Speedy Runner requires an ending cash balance of at least $12,000 and can borrow from a line of credit in $1,000 increments. What is the ending cash balance for October?

Question

Speedy Runner makes running shoes and they have gathered the following data for the month of October:  Speedy Runner requires an ending cash balance of at least $12,000 and can borrow from a line of credit in $1,000 increments. What is the ending cash balance for October?

Quizplus · Accepted Answer

To find the ending cash balance, we need to calculate the total cash inflows and cash outflows for the month of October.

Cash inflows: 
- Sales revenue = $45,000 
- Proceeds from issuance of common stock = $6,000 
- Total cash inflows = $51,000

Cash outflows: 
- Cost of goods sold = $18,000 
- Rent expense = $3,500 
- Salaries and wages expense = $15,500 
- Advertising expense = $1,500 
- Utilities expense = $1,000 
- Interest expense = $400 
- Total cash outflows = $40,400

To find the ending cash balance, we can subtract the total cash outflows from the total cash inflows:

Ending cash balance = Total cash inflows - Total cash outflows
Ending cash balance = $51,000 - $40,400
Ending cash balance = $10,600

Since the company requires an ending cash balance of at least $12,000, it falls short by $1,400. Therefore, the company will need to borrow from a line of credit. The minimum amount they can borrow is $1,000, so the best choice would be to borrow $2,700 to reach the minimum required ending balance of $12,000.

Final Ending cash balance = $10,600 + $2,700 (borrowed)
Final Ending cash balance = $12,300

Therefore, the best choice is C.

Speedy Runner Makes Running Shoes and They Have Gathered the Following