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.

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 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. Prepare monthly cash budgets for January, February, and March.

Short answer

The ending cash balance for the month of January, February and March will be$30,000, $69,294 and $30,000.

Step-by-step solution

Introduction

The cash budget of an organization defines the total cash receipts and cash payments made towards the business transactions.

Monthly cash budget

Kayak Co.
Cash budget
For the month of January, February and March
Particulars	January	February	March
Beginning cash balance	$30,000	$30,000	$69,294
Add: Cash receipts	$525,000	$400,000	$450,000
Total cash available	$555,000	$430,000	$519,294
Less: Cash payments	$475,000	$350,000	$525,000
Less: Interest expense	$600	$106	$0
Preliminary cash balance	$79,400	$79,894	-$5,706
Less: Additional loan	-$49,400	-$10,600	$35,706
Ending cash balance	$30,000	$69,294	$30,000