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 wareh Cash Receipts $522,000 411,000 476,000 Cash payments $467,700 356,700 535,000 According to a credit agreement with the company's bank, Kayak promises to have 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:

	January $	February $	March $
Beginning Cash Balance	40,000.00	40,000 (Closing Balance of January)	58,445 (Closing Balance of February)
Add: Cash Receipts	5,22,000.00	4,11,000.00	4,76,000.00
Total Cash Available	5,62,000.00	4,51,000.00	5,34,445.00
Less: Cash Payments	4,76,700.00	3,56,700.00	5,35,000.00
Less: Payment of Interest on Loan	1% of $80,000 = 800	1% of $35,500 = 355	-
Preliminary Cash Balance = Total Cash Available - Cash Payments - Payment of Interest on Loan	84,500.00	93,945.00	-555.00
Less: Repayment of Loan	84,500 - 40,000 = 44,500	35,500.00	-
Add: Additional Loan taken	-		40,000 -(-555) = $40,555
Ending Cash Balance = Preliminary Cash Balance - Repayment of Loan + Additional Loan taken	40,000.00	58,445.00	40,000.00
Loan Balance
Loan Balance - Beginning of Month	80,000.00	35,500.00	-
Additional Loan (Loan Repayment)	-44,500.00	-35,500.00	40,555.00
Loan Balance - End of Month	35,500.00	-	40,555.00