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	$	527,000		$	473,800
February		410,000			356,800
March		467,000			528,000

According to a credit agreement with its bank, Kayak requires a minimum cash balance of $50,000 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 $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.

March KAYAK COMPANY Cash Budget For January, February, and March January February Beginning cash balance $ 50,000 $ 50,000 Cash receipts Total cash available Cash payments Interest expense Preliminary cash balance Additional loan (loan repayment) Ending cash balance Loan balance Loan balance - Beginning of month $ 100,000 Additional loan (loan repayment) Loan balance - End of month

Answer 1

Answer: KAYAK COMPANY Cash Budget For January, February and March January Beginning Cash Balance 50,000 Cash Receipts 527,000 Total Cash Available 577,000 Cash Payments -473,800 Interest Expense -1,000 Preliminary Cash Balance 102,200 Additional Loan (Loan repayment) -52,200 Ending Cash Balance 50,000 February 50,000 410,000 460,000 -356,800 -478 102,722 -47,800 54,922 March 54,922 467,000 521,922 -528,000 -6,078 56,078 50,000 Loan Balance Loan Balance - Beginning of month Additional Loan (Loan repayment) Loan Balance - End of month 100,000 -52,200 47,800 47,800 -47,800 56,078 56,078 Interest Expense, January = $100,000 * 1% = $1,000 Interest Expense, February = $47,800 * 1% = $478