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 9.000 54.000 30.000 207.000 $ 300,000 Accounts receivable Tnventory taildings and equipment, net of depreciation Total assets Liabilities and stockholders' Equity Accounts payable Note payable Common stock Retained earnings Total liabilities and stockholders' equity $ 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) 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	($ 257000 - $ 77100) 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