Monday, 9 February 2015

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.

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 $ 518,000       $ 485,000        
  February   412,500         358,000        
  March   462,000         532,000        

   

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 principal on the loan 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. (Amounts to be deducted should be indicated by a minus sign.)
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Explanation: