A3+ Has Prepared Its Third Quarter Budget and Provided the Following

question 35

Multiple Choice

A3+ has prepared its third quarter budget and provided the following data:
$$\begin{array} { | l | l | l | l | } \hline & { \text { Jul } } & { \text { Aug } } & { \text { Sep } } \\\hline \text { Cash collections } & \$ 50,000 & \$ 39,900 & \$ 46,300 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 30,000 & 21,500 & 17,900 \\\hline \text { Operating expenses } & 12,100 & 8600 & 11,100 \\\hline \text { Capital expenditures } & 13,500 & 24,300 &0\\\hline \end{array}$$
The cash balance on 30 June is projected to be $4000.The company has to maintain a minimum cash balance of $5,000 and is authorised to borrow at the end of each month to make up any shortfalls.It may borrow in increments of $5,000 and has to pay interest every month at an annual rate of 4%.All financing transactions are assumed to take place at the end of the month.The loan balance should be repaid in increments of $5,000 whenever there is surplus cash.
How much will the company have to borrow at the end of July?

• A) $10,000
• B) $0
• C) $5 000
• D) $15,000

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Definitions:

Accounting Issues

Challenges and considerations in the field of accounting, including standards, practices, and the handling of specific financial situations.

Times Interest Earned

A financial ratio that measures the ability of a business to meet its interest payments based on current earnings.

Interest Expense

The cost incurred by a company for borrowed funds, including loans, bonds, and lines of credit.

Times Interest Earned Ratio

A metric to assess a company's ability to meet its debt obligations, calculated as earnings before interest and taxes divided by interest expense.