Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash payments...

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.

 Cash Receipts Cash payments January \$ 523,000 \$ 469,800 February 403,000 349,800 March 456,000 535,000

According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of \$50,000 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 \$50,000 on the last day of each month. The company has a cash balance of \$50,000 and a loan balance of \$100,000 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.)

Solution

 KAYAK COMPANY Cash Budget for januarym february and March January February March Beginning Cash Balance \$ 50,000 \$ 50,000 \$ 54,922 Cash receipts \$ 523,000 \$ 403,000 \$ 456,000 Total Cash Available \$ 573,000 \$ 453,000 \$ 510,922 Cash payments \$ 469,800 \$ 349,800 \$ 535,000 Interest Expense \$ 1,000 \$ 478 Preliminary cash balance \$ 102,200 \$ 102,722 -\$ 24,078 Additional loan (Loan Repayments) -\$ 52,200 -\$ 47,800 \$ 74,078 Ending Cash Balance \$ 50,000 \$ 54,922 \$ 50,000 Loan Balance Loan Balance -Beginning of Month \$ 100,000 \$ 47,800 \$ 0 Additional Loan (Loan Repayment) -\$ 52,200 -\$ 47,800 \$ 74,078 Loan Balance End of Month \$ 47,800 \$ 0 \$ 74,078