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 $ 525,000 $ 475,000
February 400,000 350,000
March 450,000 525,000

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 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 $30,000 and a loan balance of $60,000 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.)

Answer 1

Answer:

See explanation section

Explanation:

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Answer 2

The preparation of the cash budgets for the next first three months of next year for Kayak Co. is as follows:

                                               January        February          March

Beginning cash balance      $30,000       $30,000        $69,294

Cash receipts                       525,000       400,000        450,000

Total cash available          $555,000     $430,000       $519,294

Cash disbursements           475,000        350,000        525,000

Ending cash balance          $80,000       $80,000          ($5,706)

Required minimum balance 30,000         30,000           30,000

Available for Loan Payment 50,000        50,000         ($36,000)

Loan Interest & Principal Payment:

Interest repayment                 $600            $106

Loan:

Beginning balance           $60,000      $10,600

Loan repayment              ($49,400)    ($10,600)

Ending balance                 $10,600       $0

Data and Calculations:

Month        Cash Receipts   Cash Disbursements

January       $ 525,000             $ 475,000

February        400,000                350,000

March            450,000                525,000

Minimum required cash balance = $30,000 per month-end

Loan limit = $150,000

Annual interest rate = 12%

Interest payment and principal repayment = last day of each month

Interest computation = beginning balance

Beginning cash balance = $30,000

Beginning loan balance = $60,000

The beginning balance of March = $69,294 ($80,000 - $106 - $10,600)

Thus, at the end of March, Kayak Co. needs to borrow $36,000.

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