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This is the amount that Monroe will need to borrow during the month of February. However, the question asks how much borrowing will be required at the end of February . In other words, what will be the outstanding balance of short-term borrowings outstanding as of the end of February? To determine that, it is necessary to calculate the cash flow and required borrowing for the month of January as well as for the month of February. See correct answer for a full explanation.
This answer results from deducting other monthly expense as given in the problem ($25,000) from either January's or February's cash flow, instead of the cash expense. The other monthly expenses include $5,000 of monthly depreciation that is not a cash expense. Therefore, the other monthly expenses amount given in the problem needs to be adjusted to include only cash expenses. See correct answer for a full explanation.
This answer results from deducting other monthly expense as given in the problem ($25,000) from both January's and February's cash flow, instead of the cash expense. The other monthly expenses include $5,000 of monthly depreciation that is not a cash expense. Therefore, the other monthly expenses amount given in the problem needs to be adjusted to include only cash expenses. See correct answer for a full explanation.
The company will need to borrow $10,000 at the end of January and another $60,000 at the end of February, for a total outstanding short-term borrowings of $70,000 as of the end of February. The cash flow for January and February, including the short-term borrowings, is below. Note that the beginning cash balance for February cannot be known until the ending cash balance for January has been calculated, and therefore we must calculate the cash flow and ending cash for January before we can calculate the cash flow and ending cash for February. January February Beginning cash $30,000 $10,000 +Collections [Dec. Sales] [Jan. Sales] +200,000 +200,000 ? Purchases [Feb. Sales × .60] [Mar. Sales × .60] ? 210,000 ? 240,000 ? Other cash expenses (depreciation excluded) ? 20,000 ? 20,000 = Ending cash before borrowing/repaying loans 0 ? 50,000 +/? Borrowed/(repaid) + 10,000 + 60,000 = Ending cash 10,000 10,000