Question

Exercise 7-17 Preparation of cash budgets (for three periods) LO P2

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	$	525,000		$	466,300
February		403,000			344,300
March		480,000			523,000

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 $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 $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.

Answer 1

CASH BUDGET
			JAN	FEB	MARCH
Beginning Balance			30,000	30,000	86,781
Add: Receipt
Cash Collections-as computed above			525,000	403,000	480,000
Total Cash available			555,000	433,000	566,781
Payments:
Cash disbursement-as computed above			466,300	344,300	523,000
Total Payments made			466,300	344,300	523,000
Net Balance			88,700	88,700	43,781
Add: Borrowings
Less: Repayment of principal			-58,100	-1,900	0
Less: Repayment of Interest			-600	-19	0
Ending Balance of cash			30,000	86,781	43,781
Loan balance:
Beginning balance			60000	1,900	0
Add: Borrowings
Less: Repayments			-58100	-1900	0
Ending balance of loan			1900	0	0