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	$	516,000		$	463,900
February		406,000			353,900
March		454,000			536,000

According to a credit agreement with its bank, Kayak requires 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.

Answer 1

KAYAK COMPANY
Cash Budget
For January, February and March
	January	February	March
Beginning balance	40000	40000	63113
Cash Receipts	516000	406000	454000
Total cash available	556000	446000	517113
Cash Payments	463,900	353900	536000
Interest expenses (80000*1%), (28700*1%)	800	287	0
Preliminary cash balance (556000-463900-800)	91300	91813	-18887
Additional loan (loan repayment)	-51300	-28700	58887
Ending cash balance	40000	63113	40000
Loan Balance
Loan Balance - Beginning of month	80000	28700	0
Additional loan (loan repayment)	-51300	-28700	58887
Loan Balance - End of month	28700	0	58887