A construction company has the following for March: Beginning cash $45,000, Cash receipts $125,000, Cash disbursements $98,000, Minimum cash requirement $25,000. What is the projected cash surplus or deficit?
Correct Answer
C) $47,000 surplus
Ending cash = Beginning cash + Receipts - Disbursements = $45,000 + $125,000 - $98,000 = $72,000. Surplus = $72,000 - $25,000 minimum requirement = $47,000 surplus.
Why This Is the Correct Answer
Option A correctly calculates the cash surplus by first determining ending cash ($45,000 + $125,000 - $98,000 = $72,000), then subtracting the minimum cash requirement to find the surplus above the required minimum. The surplus is $72,000 - $25,000 = $47,000. This represents the amount of cash available beyond what the company needs to maintain for operational safety.
Why the Other Options Are Wrong
Option B: $27,000 surplus
This option shows the ending cash balance ($72,000) but fails to subtract the minimum cash requirement of $25,000. The question asks for surplus or deficit, which requires comparing the ending cash to the minimum requirement, not just calculating the ending balance.
Option D: $72,000 surplus
This amount doesn't correspond to any logical calculation from the given figures. It appears to be an arbitrary number that doesn't result from the proper cash flow calculation or surplus/deficit analysis.
Memory Technique
Remember 'BRED': Beginning + Receipts - Expenses (disbursements) = ending cash, then subtract minimum Requirement for surplus/Deficit.
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