Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash payments (excluding cash payments for loan principal and interest payments) for the first three months of next year. Cash Receipts Cash payments January $ 526,000 $ 471,700 February 406,500 352,200 March 464,000 533,000 According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of $40,000 at each month-end. In return, the bank has agreed that the company can borrow up to $160,000 at a monthly interest rate of 1%, paid on the last day of each month. The interest is computed based on the beginning balance of the loan for the month. The company repays loan principal with any cash in excess of $40,000 on the last day of each month. The company has a cash balance of $40,000 and a loan balance of $80,000 at January 1. Prepare monthly cash budgets for January, February, and March. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign.)

Answer 1

Kayak Co
Cash Budget
	January	February	March
Beginning cash balance	$                                           40,000	$                        40,000	$                                       67,535
Add: Total Cash Receipts	$                                         526,000	$                      406,500	$                                     464,000
Total Cash Available	$                                         566,000	$                      446,500	$                                     531,535
Less:Total Cash Payments	$                                         471,700	$                      352,200	$                                     533,000
Less: Interest expenses	$80,000*1% = $800	$26,500*1% = $265
Preliminary cash balance	$                                           93,500	$                        94,035	$                                       (1,465)
Additional loan (loan repayment)	$93,500-$40,000 = ($53,500)	$                      (26,500)	$40,000 - $1,465 = $41,465
Ending cash balance	$                                           40,000	$                        67,535	$                                       40,000

Loan Balance
Loan balance - Beginning of the month	$                                           80,000	$                        26,500
Additional loan (Loan repayment)	$                                         (53,500)	$                      (26,500)	$                                       41,465
Loan balance - End of month	$                                           26,500	$                                    -	$                                       41,465

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