Sparks Corporation has a cash balance of $7,500 on April 1. The company must maintain a minimum cash balance of $6,000. During April, expected cash receipts are $48,000. Cash disbursements during the month are expected to total $52,000. Ignoring interest payments, during April the company will need to borrow:

Question

Quizplus · Accepted Answer

To determine the amount that Sparks Corporation needs to borrow in April, we need to calculate their net cash flow: 
Cash receipts - Cash disbursements = Net cash flow 
$48,000 - $52,000 = -$4,000 
This means that Sparks Corporation will have a negative net cash flow of $4,000 in April. 
To maintain the minimum cash balance of $6,000, they will need to borrow enough to cover the shortfall: 
$6,000 - $7,500 = $-1,500 (shortfall) 
Since this is less than the negative net cash flow of $4,000, we only need to borrow enough to cover the $1,500 shortfall: 
$4,000 - $1,500 = $2,500 
Therefore, the answer is B) $2,500.

Sparks Corporation Has a Cash Balance of $7,500 on April