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	$	524,000		$	466,400
February		403,500			345,900
March		455,000			522,000

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.)
March 455,000 KAYAK COMPANY Cash Budget For January, February, and March January February Beginning cash balance $ 40,000 $ 40,000 Cash receipts ſ 524,000 403,500 Total cash available 564,000 443,500 Cash payments 466,400 345,900 Interest expense Preliminary cash balance Additional loan (loan repayment) Ending cash balance Loan balance Loan balance - Beginning of month $ 80,000 522,000 $ 0 Additional loan (loan repayment) Loan balance - End of month

Answer 1

Ans:

Kayak Company
Cash Budget
For January, February & March
	January $	February $	March $
Beginning cash balance	40,000	40,000	74,168
Cash receipts	524,000	403,500	455,000
Total available cash	564,000	443,500	529,168
Cash payments	- 466,400	- 345,900	- 522,000
Interest expense	- 800	- 232	0
Preliminary cash balance	96,800	97,368	7,168
Additional loan/ (loan repayment)	- 56,800	- 23,200	32,832
Ending cash balance	40,000	74,168	40,000
Loan balance
Loan balance - Beginning of month	80,000	23,200	0
Additional loan / (loan repayment)	- 56,800	-23,200	32,832
Loan balance - End of month	23,200	0	32,832

Interest computation:

Interest expense = principal amount * monthly interest rate

If any doubts or queries please comment and clarify I'll explain ASAP.