Question

Minden Company is a wholesale distributor of premium European chocolates. The company's balance sheet as of April 30 is given below: Minden Company Balance Sheet April 30 Assets Cash Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Note payable Common stock Retained earnings Total liabilities and stockholders' equity $ 9,000 54,000 30,000 207,000 $ 300,000 $ 63,000 14,500 180,000 42,500 300,000 $ The company is in the process of preparing a budget for May and has assembled the following data a. Sales are budgeted at $220,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. Each month's credit sales are collected 60% in the month of sale and 40% in the month following the sale. All of the April 30 accounts receivable will be collected in May. b. Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All of the April 30 accounts payable to suppliers will be paid during May. c. The May 31 inventory balance is budgeted at $40,000. d. Selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $6,500 will be purchased for cash during May. g. During May, the company will borrow $20,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Answer 1

a)	Expected Cash collection for May
	Cash sales for May			$   60,000.00
	60% of credit sales of May			$   96,000.00	($ 220000 - $ 60000) x 60%
	Accounts Receivable balance			$   54,000.00
				$ 210,000.00

b)	Cash disbursement for May (for merchandise purchase)
	50% of the purchase of May				$   60,000.00
	Accounts Payable balance				$   63,000.00
					$ 123,000.00

c)	Cash Budget for May
	Beginning balance			$     9,000.00
Add:	Collections			$ 210,000.00
	Total cash available			$ 219,000.00
Less:	Disbursements
	Merchandise purchase			$ 123,000.00
	Selling and Adm. Expenses			$   72,000.00
	Notes payable paid			$   14,600.00
	Refrigerator purchased			$     6,500.00
	Total disbursements			$ 216,100.00
	Net cash available			$     2,900.00
Add:	Borrowal			$   20,000.00
	Ending cash balance			$   22,900.00

d)	Income Statement
	Sales	$ 220,000.00
Less:	COGS ($ 30000 + $ 120000 - $ 40000)	$ 110,000.00
	Gross Profit	$ 110,000.00
Less:	Expenses:
	Selling and Adm. Expenses	$   72,000.00
	Depreciation	$     2,000.00
	Interest on Loan	$         100.00
	Net Income	$   35,900.00

e)	Balance Sheet
	Assets
	Cash		$   22,900.00
	Accounts Receivable		$   64,000.00
	Inventory		$   40,000.00
	B&E ($ 207000 + $ 6500 - $ 2000)		$ 211,500.00
			$ 338,400.00
	Liabilities and Equity
	Accounts Payable		$   60,000.00
	Note Payable		$   20,000.00
	Common Stock		$ 180,000.00
	Retained Earnings ($ 42500 + $ 35900)		$   78,400.00
			$ 338,400.00