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. Cash Receipts Cash payments January $ 517,000 $ 461,600 February 405,500 350,100 March 476,000 532,000 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 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 $30,000 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 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
	January	February	March
Beginning cash balance	30000	30000	80148
Cash receipts	517000	405500	476000
Total cash available	547000	435500	556148
Cash disbursements	461600	350100	532000
Interest expense	600	52	0
Preliminary cash balance	84800	85348	24148
Additional loan (loan repayment)	-54800	-5200	5852
Ending cash balance	30000	80148	30000
	Loan balance
Loan balance ­ Beginning of month	60000	5200	0
Additional loan (loan repayment)	-54800	-5200	5852
Loan balance ­ End of month	5200	0	5852
Note:
Interest expense January = 60000*1% = 600
Interest expense February = 5200*1% = 52