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. January February March Cash Receipts $522,000 411,000 453,000 Cash payments $464,400 353,400 521,000 According to a credit agreement with its bank, Kayak requires 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.)

Answer 1

	KAYAK COMPANY
	Cash Budget
	For January, February, and March
	January	February	March
Beginning cash balance	40000	40000	74168
Cash receipts	522000	411000	453000
Total cash available	562000	451000	527168
Cash disbursements	464400	353400	521000
Interest expense	800	232	0
Preliminary cash balance	96800	97368	6168
Additional loan (loan repayment)	-56800	-23200	33832
Ending cash balance	40000	74168	40000
	Loan balance
Loan balance ­ Beginning of month	80000	23200	0
Additional loan (loan repayment)	-56800	-23200	33832
Loan balance ­ End of month	23200	0	33832
Note:
Interest expense January = 80000*1% = 800
Interest expense February = 23200*1% = 232