Question

Royal Industries has budgeted the following information for January: Cash Receipts $ 40,000 Beginning Cash Balance $ 10,000 Cash Payments $ 48,000 Desired Ending Cash Cushion $ 5,000 If there is a cash shortage, the company borrows money. If a surplus occurs funds are used to repay loans or to invest in short-term assets. All borrowing, repayments, and interest payments occur on the last day of the month. The interest rate is 1% per month. The amount of interest expense incurred for January is: __________
A. $20.
B. $30.
C. $50.
D. None of the above.

Answer 1

Answer:

correct option is D. None of the above

Explanation:

given data

Cash Receipts =  $40,000

Beginning Cash Balance = $10,000

Cash Payments = $48,000

Desired Ending Cash Cushion = $5,000

interest rate = 1% per month

to find out

amount of interest expense incurred for January

solution

we get here first Cash available that is

Cash available  = Cash Receipts + Beginning Cash Balance - Cash Payments   ...........1

Cash available  = $40,000 + $10,000 - $48,000

Cash available = $2,000

so

Borrow amount is = Desired Ending Cash Cushion - Cash available   .........2

Borrow amount = $5,000 - $2000

Borrow amount = 3,000

so here borrow amount is made at last month so that no interest will be accrued for January

interest will paid t end of February

so correct option is D. None of the above