Amount to Borrow Calculation for Sheffield Corp
How much does Sheffield Corp need to borrow if they have a beginning cash balance of $50,000 and require an ending cash balance of $44,000?
A. $84,000
B. $150,000
C. $44,000
D. $94,000
Answer:
The correct amount that Sheffield Corp needs to borrow is $94,000.
Sheffield Corp needs to borrow $94,000 in order to maintain an ending cash balance of $44,000. To calculate the amount to borrow, we need to follow the following steps:
Step 1: Calculate the cash balance
Beginning cash balance = $50,000
Cash receipts = $270,000
Cash disbursements = $370,000
Cash balance = Beginning cash balance + Cash receipts - Cash disbursements
Cash balance = $50,000 + $270,000 - $370,000
Cash balance = -$50,000
Step 2: Calculate the amount to borrow
Ending cash balance = $44,000
Amount to borrow = Ending cash balance + Cash balance
Amount to borrow = $44,000 + $50,000
Amount to borrow = $94,000
Therefore, Sheffield Corp must borrow $94,000 to meet their cash flow requirements.