Uncle's Caps, a merchandiser, has provided the following budgeted amounts for the next budget period. $$\begin{array} { | l | r | }
\hline \text { Balance of cash at the beginning } & \$ 30,000 \
\hline \text { Cash collections } & 680,000 \
\hline \text { Payments for: } & \
\hline \text { Purchase of inventory } & 350,000 \
\hline \text { Selling and administrative expenses } & 70,400 \
\hline \text { Capital expenditures } & 89,000 \
\hline
\end{array}$$ A minimum cash balance of $250,000 is required to be maintained. The company can borrow in increments of $10,000 as and when required. Assume the company can borrow the needed funds at the end of the period. Calculate the ending cash balance for the budget period.

Question

Uncle's Caps, a merchandiser, has provided the following budgeted amounts for the next budget period. $$\begin{array} { | l | r | } 
\hline \text { Balance of cash at the beginning } & \$ 30,000 \
\hline \text { Cash collections } & 680,000 \
\hline \text { Payments for: } & \
\hline \text { Purchase of inventory } & 350,000 \
\hline \text { Selling and administrative expenses } & 70,400 \
\hline \text { Capital expenditures } & 89,000 \
\hline
\end{array}$$ A minimum cash balance of $250,000 is required to be maintained. The company can borrow in increments of $10,000 as and when required. Assume the company can borrow the needed funds at the end of the period. Calculate the ending cash balance for the budget period.

Quizplus · Accepted Answer

To calculate the ending cash balance, we need to start with the beginning cash balance and add the cash collections. Then, we need to subtract the payments for inventory purchases, selling and administrative expenses, and capital expenditures. The resulting amount is the ending cash balance before considering the minimum cash balance requirement.

Starting with the beginning cash balance of $30,000 and adding the cash collections of $680,000, we have a total of $710,000 in cash available.

Subtracting the payments for inventory purchases, selling and administrative expenses, and capital expenditures, we get:

$710,000 - ($350,000 + $70,400 + $89,000) = $200,600

So, the ending cash balance before considering the minimum cash balance requirement is $200,600.

However, the company is required to maintain a minimum cash balance of $250,000. Since the ending cash balance before considering the minimum cash balance requirement is lower than the required minimum, the company would need to borrow additional funds to meet the minimum balance.

The company can borrow in increments of $10,000 as and when required. To reach the minimum balance of $250,000, the company would need to borrow an additional:

$250,000 - $200,600 = $49,400

Since the company can borrow in increments of $10,000, they would need to borrow $50,000 in this case. Adding this to the ending cash balance before borrowing gives:

$200,600 + $50,000 = $250,600

Therefore, the ending cash balance for the budget period is $250,600. The best choice is B since it matches the calculated ending cash balance after borrowing.

Uncle's Caps, a Merchandiser, Has Provided the Following Budgeted Amounts