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 $528,000 $473,700
February 405,000 350,700
March 470,000 536,000

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 $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 $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.

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

Ending Cash Balance as are follows:

January = $40,000

February = $67,535

March = $40,000

Also, Loan Balance End of Month as follows:

January = $26,500

February = $0

March = $38,465

Explanation:

Note: See the attached excel file for the cash budget.

In the attached excel file, the following calculations are made:

January loan repayment = January Preliminary cash - January Interest expense - Minimum required cash balance = $94,300 - $800 - $40,000 = $53,500

February Loan repayment = January Loan Balance End of the Month = $26,500

March Additional Loan = Minimum required cash balance - March Preliminary cash balance = $40,000 - $1,535 = $38,465

From the attached excel file, we have Ending Cash Balance as follows:

January = $40,000

February = $67,535

March = $40,000

And also, Loan Balance End of Month as follows:

January = $26,500

February = $0

March = $38,465

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