Exercise 7-17 Preparation of cash budgets (for three periods) LO P2 Kayak Co. bu

Question

Exercise 7-17 Preparation of cash budgets (for three periods) LO P2 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 $524,000 411,500 466,000 Cash payments $465,300 352,800 534,000 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.)

Explanation / Answer

Prepare monthly cash budget :

January February march Beginning cash balance 40000 40000 76379 Cash receipts 524000 411500 466000 Total cash available 564000 451500 542379 Interest expenses 800 221 0 Cash payments 465300 352800 534000 Preliminary cash balance 97900 98479 8379 Additional loan (loan repayment) (57900) (22100) 31621 Ending cash balance 40000 76379 40000 Loan Balance Loan balance beginning of month 80000 22100 0 Additional loan (loan repayment) (57900) (22100) 31621 Loan balance-end of month 22100 0 31621

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