Kayak Co. budgeted the following cash receipts (excluding cash receipts from loa

Question

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements (excluding cash disbursements for loan principal and interest payments) for the first three months of next year. Cash Receipts Cash Disbursements January $ 523,000 $ 475,000 February 407,500 356,000 March 474,000 529,000

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 $150,000 at an annual interest rate of 12%, 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 available cash 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 each of the first three months of next year. (Be certain to enter "0" wherever required. Negative balance and Loan repayment amount should be indicated with minus sign.)

KAYAK COMPANY Cash Budget For January, February, and March March Janua $ 40,000$ 40,000 Februar Beginning cash balance Cash receipts Total cash available Cash disbursements nterest expense Preliminarv cash balance Additional loan (loan repavment Ending cash balance 523,000 407,500 474,000 563,000447,500 475,000 356,000 529,000 800 $ 40,000 Loan balance Loan balance - Begi month Additional loan (loan repavment Loan balance End of month inning of s 80,000 S 32,800 S $ 32,800 $

Explanation / Answer

Solution - Presentation of Cash Budget

KAYAK COMPANY

Cash Budget

For January, February and March

$328

($32800*12%*1/12)

Notes -

1) Other method to calculate Interest

Interest rate is 12% per annum. Hence interest rate per month will be 1%

Interest for February = ($32800*1%) = $328

Particulars January February March Beginning Cash balance $40000 $40000 $58372 Cash Receipts $523000 $407500 $474000 Total Cash Available $563000 $447500 $532372 Cash Disbursements $475000 $356000 $529000 Interest Expenses $800

$328

($32800*12%*1/12)

$0 Preliminary cash balance $87200 $91172 $3372 Additional loan (loan repayment) ($47200) ($32800) $36628 Ending cash balance $40000 $58372 $40000 Loan Balance Loan balance beginning of month $80000 $32800 $0 Additional loan (Loan repayment) ($47200) ($32800) $36628 Loan balance - end of the month $32800 $0 $36628

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