Question

Please show work possible. Thank you very much.

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 March Cash Receipts $518,000 406,000 453,000 Cash payments $ 459,300 347,300 523,000 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.)

Answer 1

KAYAK Company
Cash Budget
For January, February and March
Particulars	Jan	Feb	Mar
Beginning cash balance	40,000	40,000	76,379
Cash receipts	518,000	406,000	453,000
Total cash available	558,000	446,000	529,379
Cash payments	-459,300	-347,300	-523,000
Interest on loan	-800	-221	-
Preliminary cash balance	97,900	98,479	6,379
Additional loan (repayment)	-57,900	-22,100	-
Ending cash balance	40,000	76,379	6,379
Loan Balance
Beginning loan balance	80,000	22,100	-
Additional loan (repayment)	-57,900	-22,100	-
Ending loan balance	22,100	-	-

Calculation of interest on loan
Particulars	Jan	Feb	Mar
Opening Balance of Loan	80,000	22,100	-
Interest Rate	1%	1%	1%
Interest for each month	800	221	-

Note
In January, the preliminary cash balance = $ 97,900
Loan outstanding = $ 80,000
Minimum cash balance required = $ 40,000
Hence, cash available for loan repayment = $ 97,900 - $ 40,000 = $ 57,900
Loan repaid in January = $ 57,900
In February, the preliminary cash balance = $ 98,479
Loan outstanding = $ 22,100
Minimum cash balance required = $ 40,000
Since we have enough cash, we pay the loan in full
Loan repaid in Fenruary = $ 22,100