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 16,700 75,500 37,000 258,000 Accounts receivable Inventory Buildings and equipment, net of depreciation 387,200 Total assets Liabilities and Stockholders' Equity Accounts payable Note payable 86,750 15,700 180,000 104,750 Common stock Retained earnings Total liabilities and stockholders' equity S387,200 The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $240,000 for May. Of these sales, $72,000 will be for cash; the remainder will be credit sales. One-half of a month's credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May. b. Purchases of inventory are expected to total $118,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May. c. The May 31 inventory balance is budgeted at $31,500 d. Selling and administrative expenses for May are budgeted at $93,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,400 for the month e. The note payable on the April 30 balance sheet will be paid during May, with $160 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $15,000 will be purchased for cash during May g. During May, the company will borrow $26,600 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year Required: 1. Calculate the expected cash collections for May. 2. Calculate the expected cash disbursements for merchandise purchases for May. 3. Prepare a cash budget for May 4. Prepare a budgeted income statement for May 5. Prepare a budgeted balance sheet as of May 31.

Answer 1

72,000 Minden Company Schedule of Expected Cash Collections Cash Sales-May Collection on Accounts Receivable: April 30 balance May Sales Total Cash Receipts Credit Sales = $240,000 - $72,000 = $168,000 Collection = 50% * $168,000 = $84,000 75,500 84,000 231,500 Minden Company Schedule of Expected Cash Disbursements April 30 Accounts Payable Balance May Purchases Total Cash payments May Purchase Payment = 40% * $118,000 = $47,200 86,750 47,200 133,950

16,700 231,500 248,200 Minden Company Cash Budget For the Month of May Beginning Cash balance Add Collections from customers Total cash available Less Cash disbursements: Purchase of inventory Selling and administrative expenses Purchase of equipment Total Cash disbursements Excess of cash available over disbursements Financing Borrowing-note Repayment-note Interest Total Financing Ending cash balance 133,950 93,500 15,000 242,450 5,750 26,600 15,700 160 10,740 16,490

240,000 Minden Company Budgeted Income Statement For the Month of May Sales Cost of Goods sold: Beginning Inventory Add: Purchases Cost of Goods available for Sale Less: Ending Inventory Cost of Goods sold Gross Margin Selling and Administrative Expenses Net Operating Income Interest Net Income 37,000 118,000 155,000 31,500 123,500 116,500 95,900 20,600 160 20,440

Minden Company Budgeted Balance Sheet May 31 Assets Cash Accounts Receivable Inventory Building and Equipment, Net of Depreciation Total Assets Liabilities and Stockholders' Equity Accounts Payable Notes Payable Common Stock Retained Earnings Total Liabilities and Stockholders' Equity 16,490 84,000 31,500 270,600 402,590 70,800 26,600 180,000 125,190 402,590 Accounts Receivable = ($240,000 - $72,000) * 50% = $84,000 Building and Equipment, Net of Depreciation = $258,000 + $15,000 - $2,400 = $270,600 Accounts Payable = $118,000 * 60% = $70,800 Retained Earnings = $104,750 + $20,440 = $125,190