Question

Madison Corporation's expected beginning cash balance is $22,000. Cash collections are budgeted at $60,000 and cash disbursements are estimated to be $75,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $5,000. Required borrowings for the period equal $ [blank]

Answer 1

To determine the required borrowings for Madison Corporation, we need to follow this calculation:

1. Calculate the ending cash balance before any borrowing: \[ \text{Ending Cash Balance} = \text{Beginning Cash Balance} + \text{Cash Collections} - \text{Cash Disbursements} \] Plugging in the numbers: \[ \text{Ending Cash Balance} = $22,000 + $60,000 - $75,000 = $7,000 \]

2. Determine if borrowing is necessary: Since the ending cash balance of $7,000 is below the minimum required cash balance of $20,000, Madison Corporation will need to borrow to meet this minimum requirement.

3. Calculate the amount needed to reach the minimum required cash balance: \[ \text{Amount Needed} = \text{Minimum Required Cash Balance} - \text{Ending Cash Balance} \] \[ \text{Amount Needed} = $20,000 - $7,000 = $13,000 \]

4. Determine how much to borrow: Since borrowings must be made in increments of $5,000, we need to round $13,000 up to the nearest $5,000 increment. The next increment above $13,000 is $15,000.

Thus, the required borrowings for the period equal $15,000.