Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements (excluding cash disbursements for loan principal and interest payments) for the first three months of next year.

	Cash Receipts		Cash Disbursements
January	$	525,000	$	475,000
February		400,000		350,000
March		450,000		525,000

According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of $30,000 at each month-end. In return, the bank has agreed that the company can borrow up to $150,000 at an annual interest rate of 12%, 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 available cash on the last day of each month. The company has a cash balance of $30,000 and a loan balance of $60,000 at January 1.

Prepare monthly cash budgets for each of the first three months of next year. (Be certain to enter "0" wherever required. Negative balance and Loan repayment amount should be indicated with minus sign.)

Answer 1

	KAYAK COMPANY
	Cash Budget
	For January, February, and March
	January	February	March
Beginning cash balance	30000	30000	69294
Cash receipts	525000	400000	450000
Total cash available	555000	430000	519294
Cash disbursements	475000	350000	525000
Interest expense	600	106	0
Preliminary cash balance	79400	79894	-5706
Additional loan (loan repayment)	-49400	-10600	35706
Ending cash balance	30000	69294	30000
	Loan balance
Loan balance ­ Beginning of month	60000	10600	0
Additional loan (loan repayment)	-49400	-10600	35706
Loan balance ­ End of month	10600	0	35706
Working:
Interest expense: January ($60,000 × 12%/12) = $600
Interest expense: February ($10,600 × 12%/12) = $106