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	$	521,000		$	463,400
February		401,500			343,900
March		462,000			530,000

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 $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 $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.)

	KAYAK COMPANY Cash Budget For January, February, and March January February March Beginning cash balance Cash receipts Total cash available Cash payments Interest expense Preliminary cash balance Additional loan (loan repayment) Ending cash balance Loan balance Loan balance - Beginning of month $80,000 $0 Additional loan (loan repayment) Loan balance - End of month

Answer 1

Solution

KAYAK COMPANY
Cash Budget
for januarym february and March
	January	February	March
Beginning Cash Balance	$          40,000.00	$        40,000.00	$         74,168.00
Cash receipts	$        521,000.00	$      401,500.00	$       462,000.00
Total Cash Available	$        561,000.00	$      441,500.00	$       536,168.00
Cash payments	$        463,400.00	$      343,900.00	$       530,000.00
Interest Expense	$                800.00	$              232.00	$                        -
Priliminary cash balance	$          96,800.00	$        97,368.00	$           6,168.00
Additional loan (Loan Repayments)	$        (56,800.00)	$      (23,200.00)	$         33,832.00
Ending Cash Balance	$          40,000.00	$        74,168.00	$         40,000.00
Loan Balance
Loan Balance -Beginning of Month	$          80,000.00	$        23,200.00	$                        -
Additional Loan (Loan Repayment)	$        (56,800.00)	$      (23,200.00)	$         33,832.00
Loan Balance End of Month	$          23,200.00	$                        -	$         33,832.00