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 $524,000 401,500 465,000 Cash payments $465,300 342,800 528,000 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

Solution:

Kayak Co.
Cash Budget
	January	February	March
Beginning Cash Balance	$40,000	$40,000	$76,379
Add: Total cash receipts	$5,24,000	$4,01,500	$4,65,000
Total cash available	$5,64,000	$4,41,500	$5,41,379
Less: Cash payments	$4,65,300	$3,42,800	$5,28,000
Less: Interest payment	$800	$221	$0
Preliminary Cash balance	$97,900	$98,479	$13,379
Additional Loan (Loan repayment)	-$57,900	-$22,100	$26,621
Ending cash balance	$40,000	$76,379	$40,000
Loan Balance
Loan Balance - Beginning of month	$80,000	$22,100	$0
Additional Loan (Loan repayment)	-$57,900	-$22,100	$26,621
Loan Balance - End of month	$22,100	$0	$26,621