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 \$ 521,000 \$ 468,900 February 405,500 353,400 March 478,000 523,000

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 \$160,000 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.)

Solution :

 Cash Budget - Kayak Co. For the month of January through March Particulars January February March Quarter Beginning Cash balance \$40,000.00 \$40,000.00 \$63,113.00 \$40,000.00 Plus: Cash collections \$521,000.00 \$405,500.00 \$478,000.00 \$1,404,500.00 Total Cash Available \$561,000.00 \$445,500.00 \$541,113.00 \$1,444,500.00 Less - Cash Payments \$468,900.00 \$353,400.00 \$523,000.00 \$1,345,300.00 Ending cash balance before financing \$92,100.00 \$92,100.00 \$18,113.00 \$99,200.00 Financing: Plus: New Borrowings \$0.00 \$0.00 \$21,887.00 \$21,887.00 Less: Debt Repayments \$51,300.00 \$28,700.00 \$0.00 \$80,000.00 Less: Interest Payments \$800.00 \$287.00 \$0.00 \$1,087.00 Ending cash balance \$40,000.00 \$63,113.00 \$40,000.00 \$40,000.00

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