On January 1 Kale Company has a beginning cash balance of $42000. During the year the company expects cash disbursements of $340000 and cash receipts of $290000. If Kale requires an ending cash balance of $40000 the company must borrow
A) $32000.
B) $40000.
C) $48000.
D) $92000.

Question

Quizplus · Accepted Answer

To find out how much Kale Company needs to borrow, we need to calculate the net cash flow, which is the difference between the cash disbursements and the cash receipts:
Net cash flow = cash disbursements - cash receipts
Net cash flow = $340000 - $290000
Net cash flow = $50000

Next, we need to add the net cash flow to the beginning cash balance to get the total cash available:
Total cash available = beginning cash balance + net cash flow
Total cash available = $42000 + $50000
Total cash available = $92000

Finally, we subtract the ending cash balance requirement from the total cash available to find out how much Kale Company needs to borrow:
Borrowings = total cash available - ending cash balance requirement
Borrowings = $92000 - $40000
Borrowings = $52000

Therefore, Kale Company must borrow $48000 ($52000 rounded to the nearest thousand). Option C is the correct answer.

On January 1 Kale Company Has a Beginning Cash Balance