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 $ 525,000 $ 475,000 February 400,000 350,000 March 450,000 525,000 According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of $30,000 at each month-end. In return, the bank has agreed that the company can borrow up to $150,000 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 $30,000 on the last day of each month. The company has a cash balance of $30,000 and a loan balance of $60,000 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	$                                           30,000	$                        30,000	$                                      68,906
Add: Total Cash Receipts	$                                         525,000	$                      400,000	$                                   450,000
Total Cash Available	$                                         555,000	$                      430,000	$                                   518,906
Less:Total Cash Payments	$                                         475,000	$                      350,000	$                                   525,000
Less: Interest expenses	$60,000*1% = $600	$49,400*1% = $494
Preliminary cash balance	$                                           79,400	$                        79,506	$                                      (6,094)
Additional loan (loan repayment	$79,400-$30,000 = ($49,400)	$                      (10,600)	$6,094+$30,000 = $36,094
Ending cash balance	$                                           30,000	$                        68,906	$                                      30,000

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