Cement Works has a beginning cash balance for the quarter of $1,211. The company requires a minimum cash balance of $1,200 and uses a loan account to maintain that balance. If funds have been borrowed, then they are repaid as soon as excess funds are available. Currently, the outstanding loan balance is $1,318. How much will be borrowed or repaid this quarter if the quarterly receipts are $4,209 and the quarterly disbursements are $3,807.

a. Borrow $416
b. Borrow $402
c. Borrow $413
d. Repay $413
e. Repay $402

The correct answer is:

Repay $413 (d)

Explanation:

In order to solve this, we first of all have to classify all the cash as either income or expenditure, then we find the net balance, and putting the minimum cash balance into consideration, find if money will be borrowed or payed. It is calculated as follows:

Beginning balance = $1,211

Outstanding debt = $1,318

Quarterly Receipt = $4,209

Quarterly disbursement = $3,807

Minimum holding balance = $1,200.

Next, let us determine all the incomes and money at hand, they are; Beginning balance and quarterly receipt, while the expenditure is; quarterly disbursement.

Next, we will calculate the balance after available cash has been subtracted  from expenditure.

Total cash available = Beginning balance + quarterly receipt

= $1,211 + $4,209 = $5,420.

Balance left at the end of the quarter = Available cash - expenditure

= $5,420 - $3,807 = $1,613

So at the end of the quarter, we are left with a balance of $1,613.

Next, we have to consider the statement that says "the minimum cash required by the company is $1,200" meaning that at any time, the cash of the company is at least $1,200.

Hence, amount left when minimum cash is removed = $1,613 - $1,200 = $413.

The excess balance left at the end of the quarter is $413, and since the company was owing some debt, it will have to repay with the excess fund of $413.