Kayak Co. budgeted the following cash receipts (excluding cash receipts from loa

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 March Cash Receipts $522,000 403,000 459,000 Cash payments $463,300 344,300 531,000 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 (Iif any) should be indicated with minus sign.) Cash Budget For January, February, and March February March January $ 40,000 Beginning cash balance Total cash available Preliminary cash balance Ending cash balance Loan balance-Beginning of month80,000 Additional loan (loan repayment) Loan balance-End of month

Explanation / Answer

Prepare monthly cash budget :

January February marchh Beginning cash balance 40000 40000 76379 Add: Cash receipts 522000 403000 459000 Total cash available 562000 443000 535379 Less: Total cash disbursement (463300) (344300) (531000) Interest expenses (800) (221) 0 Preliminary cash balance 97900 98479 4379 Borrowing (repayment) (57900) (22100) 35621 Ending cash balance 40000 76379 40000 Loan Balance Loan balance-beginning of month 80000 22100 0 Additional loan (loan repayment) (57900) (22100) 35621 Loan balance : End of month 22100 0 35621

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