Question

Exercise 7-17 Preparation of cash budgets (for three periods) LO P2 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 $528,000 Cash payments $470,400 348,900 532,000 406,500 475,000 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 $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 $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

Cash Budget as asked

	January	February	March
Beginning Cash Balance	$              30,000	$               30,000	$            84,570
Cash receipts	$            528,000	$             406,500	$          475,000
Total Cash available	$            558,000	$             436,500	$          559,570
Cash payments	$          (470,400)	$          (348,900)	$       (532,000)
Interest Expense	$                  (600) [=60000 x 1%]	$                     (30) [=3000 x 1%]	$                     -
Preliminary Cash balance	$              87,000	$               87,570	$            27,570
Additional Loan (Loan repayment)	$            (57,000)	$               (3,000)	$              2,430
Ending Cash balance	$              30,000	$               84,570	$            30,000
Loan balance - Beginning of month	$              60,000	$                 3,000	$                     -
Additional loan (repayment)	$            (57,000)	$               (3,000)	$              2,430
Loan balance - End of month	$                 3,000	$                        -	$              2,430