Cornell Company is preparing a cash budget for the month of June.The following information is available:
$\begin{array}{ll}
\text { Cash Balance, May 31, } 2014 & \$ 11,000 \
\text { Cash collections from customers in June } & 43,000 \
\text { Cash paid for land in June } & 10,000 \
\text { Patent amortization expense in June } & 5,000 \
\text { Cash paid for merchandise in June } & 20,000 \
\text { Cash paid for operating expenses in June } & 20,000 \
\text { Cash dividend paid in June } & 5,000
\end{array}$
The minimum cash balance desired is $5,000.What is the deficiency of cash before financing at June 30,2014?
A) $(5,000)
B) $(6,000)
C) $(11,000)
D) $(12,000)

Question

Quizplus · Accepted Answer

To calculate the deficiency of cash before financing at June 30, 2014, we need to consider the cash inflows and outflows. The cash inflows include the beginning cash balance and cash collections from customers, totaling $11,000 + $43,000 = $54,000. The cash outflows include cash paid for land, merchandise, operating expenses, and cash dividends, totaling $10,000 + $20,000 + $20,000 + $5,000 = $55,000. The patent amortization expense is a non-cash expense and is not considered in a cash budget. Therefore, the net cash flow is $54,000 - $55,000 = $(1,000). Since the company desires a minimum cash balance of $5,000, the deficiency of cash before financing is $5,000 (desired) - $1,000 (actual) = $6,000.

Cornell Company Is Preparing a Cash Budget for the Month