Question

3 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. 3 points January February March Cash Receipts $522,000 402,000 453,000 Cash payments $468,800 348,800 528,000 eBook 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 $140,000 at a monthly interest rate of 1%, pald 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 balance of $40,000 and a loan balance of $80,000 at January 1 Hint Print Prepare monthly cash budgets for January, February, and March. (Negative balances and Loan repayment amounts (if any) should be Indicated with minus sign.) erences KAYAK COMPANY Cash Budget For January, February, and March January February $ 40,000 Beginning cash balance March Total cash available Preliminary cash balance Ending cash balance Lean balance ME G < Prev 3 of 8 H Next

Answer 1

Preparation of a monthly cash budgets for each of the first three months of next year:

KAYAK COMPANY
Cash Budget
For January, February, and March
	January	February	March
Beginning cash balance.................................	$ 40,000	$ 40 ,000	$  65,324
Cash receipts.................................................	522,000	402,000	453,000
Total cash available.......................................	562,000	442,000	518,324
Cash disbursements.......................................	468,800	348,800	528,000
Interest expense
January  ($80,000 x 1%).............................	800
February ($27,600 x 1%)............................	________	276	________
Preliminary cash balance...............................	92,400	92,924	(9,676)
Additional loan from bank............................			49,676
Repayment of loan to bank...........................	(52,400)	(27,600)	________
Ending cash balance......................................	$ 40,000	$   65,324	$ 40,000
Ending loan balance*....................................	$ 27,600	$           0	$ 49,676

*Loan balance is $80,000 at the beginning of January.  January's ending loan balance is computed as $80,000 - 52,400 = $27,600.

Note points :

1. It is agreed that Kayak has to maintain a minimum cash balance of $40,000 at the end of each month.

2. Interest on loan is 1% per month.

3. In March additional loan requirement is there to maintain a minimum cash balance.