Hilliard Company budgeted the following transactions for April Year 2: $$\begin{array} { l r }
\text { Sales (75\% collected in month of sale) } & \$ 200,000 \
\text { Cash Operating Expenses } & 105,000 \
\text { Cash Purchases of Irvestrnents } & 75,000 \
\text { Cash Payment of Debt } & 15,000 \
\text { Depreciation on Operating Assets } & 12,000
\end{array}$$ 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 borrowings 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

Hilliard Company budgeted the following transactions for April Year 2: $$\begin{array} { l r } 
\text { Sales (75\% collected in month of sale) } & \$ 200,000 \
\text { Cash Operating Expenses } & 105,000 \
\text { Cash Purchases of Irvestrnents } & 75,000 \
\text { Cash Payment of Debt } & 15,000 \
\text { Depreciation on Operating Assets } & 12,000
\end{array}$$ 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 borrowings in April would be:
A) $40,000 surplus.
B) $40,000 shortage.
C) $20,000 shortage.
D) There is no cash surplus or shortage.

Quizplus · Accepted Answer

The calculation for the surplus or shortage of cash before considering any borrowings in April is as follows:- Cash inflow from sales: 75% of $200,000 = $150,000- Total cash outflow: Cash Operating Expenses ($105,000) + Cash Purchases of Investments ($75,000) + Cash Payment of Debt ($15,000) = $195,000- Net cash flow: Cash inflow - Cash outflow = $150,000 - $195,000 = -$45,000- Desired ending cash balance: $25,000- Required cash for the month: Beginning cash balance + Net cash flow = $50,000 - $45,000 = $5,000- Shortage to meet desired ending balance: Desired ending balance - Available cash = $25,000 - $5,000 = $20,000 shortage.

Hilliard Company Budgeted the Following Transactions for April Year 2