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22 December, 01:40

On January 1, Witt Company has a beginning cash balance of $126,000. During the year, the company expects cash disbursements of $1,020,000 and cash receipts of $870,000. If Witt requires an ending cash balance of $120,000, Witt Company must borrow $96,000. $120,000. $144,000. $276,000.

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  1. 22 December, 03:30
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    The company must borrow $144000

    Explanation:

    The required ending cash balance is the balance that the company should have at the end of the period. The decision to borrow will be taken by comparing the actual ending balance with the required ending balance. If the actual ending balance is less than the required ending balance, only then the company needs to borrow to reach the desired level of ending balance.

    The actual ending balance can be calculated as,

    Actual Ending balance = Opening Balance + Cash receipts - Cash disbursements

    Actual Ending balance = 126000 + 870000 - 1020000

    Actual Ending balance = - $24000

    Difference = - 24000 - 120000 = - $144000

    As the ending cash balance is negative ( - $24000) which means that there is a shortage of cash and the company does not have enough cash to meet the disbursements for the period and maintain the required ending cash balance. The negative sign in difference indicates shortage and the need for borrowing. The company should borrow for the amount of difference. Thus, the company should borrow $144000
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Home » Business » On January 1, Witt Company has a beginning cash balance of $126,000. During the year, the company expects cash disbursements of $1,020,000 and cash receipts of $870,000.
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