Question

Exercise 20-17 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. Cash Receipts Cash payments January $ 516,000 $ 458,400 February 407,000 349,400 March 458,000 523,000 According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of $50,000 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 $50,000 on the last day of each month. The company has a cash balance of $50,000 and a loan balance of $100,000 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	50000	50000	63766
Cash receipts	516000	407000	458000
Total cash available	566000	457000	521766
Cash payments	458400	349400	523000
Interest expense	1000	434	0
Preliminary cash balance	106600	107166	-1234
Additional loan (loan repayment)	-56600	-43400	51234
Ending cash balance	50000	63766	50000
Loan balance
Loan balance - Beginning of month	100000	43400	0
Additional loan (loan repayment)	-56600	-43400	51234
Loan balance - End of month	43400	0	51234

Interest expense:

For January = $100000 x 1% = $1000

For February = $43400 x 1% = $434