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	$	10,300
Accounts receivable		70,000
Inventory		43,000
Buildings and equipment, net of depreciation		227,000
Total assets	$	350,300
Liabilities and Stockholders’ Equity
Accounts payable	$	86,000
Note payable		23,000
Common stock		180,000
Retained earnings		61,300
Total liabilities and stockholders’ equity	$	350,300

The company is in the process of preparing a budget for May and has assembled the following data:

1. Sales are budgeted at $276,000 for May. Of these sales, $82,800 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.

2. Purchases of inventory are expected to total $147,000 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.

3. The May 31 inventory balance is budgeted at $43,000.

4. Selling and administrative expenses for May are budgeted at $97,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,200 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $235 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $12,100 will be purchased for cash during May.

7. During May, the company will borrow $29,200 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 from customers 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

Answer
Requirement-1	expected cash collections from customers for May.
	Schedule of Expected cash collection
	Cash sales-May	$       82,800
	Collections on account receivable
	April 30 balance	$       70,000
	May sales (276000-82800)*0.50	$       96,600
	Total Cash Receipts	$     249,400
Therefor total cash receipts is $ 249,400

Requirement-2	expected cash disbursements for merchandise purchases for May.
	Schedule of Expected cash disbursements
	April 30 accounts payable balance	$        86,000
	May purchases(147000*0.40)	$        58,800
	total cash payments	$      144,800

Requirement-3	Cash budget for May.
	Beginning cash balance	$        10,300
	Add -Collections	$      249,400
	total cash available	$      259,700
	less- Cash disbursements
	purchase of inventor	$      144,800
	selling and administrative expense	$        97,500
	purchase of Equipment	$        12,100
	total cash disbursements	$      254,400
	Excess of cash available over disbursements	$          5,300
	financing:
	borrowing -note	$        29,200
	Repayments-note	-$        23,000
	interest	-$             235
	total financing	$          5,965
	Ending cash balance	$        11,265

Requirement-4	budgeted income statement for May.
	sales	$      276,000
	cost of goods sold: Working Note	$      147,000
	Gross margin	$      129,000
	Selling and administrative exp	$        97,500
	Depreciation expense	$          3,200
	net operating income	$        28,300
	interest exp	$             235
	Net income	$        28,065

Working Note
cost of goods sold:
beginning inventory	$       43,000
Add-purchases	$     147,000
goods available for sale	$     190,000
less - ending inventory	$       43,000
cost of goods sold:	$     147,000

Requirement-5
budgeted balance sheet as of May 31.
	Assets
	Cash	$      11,265
	Account receivable	$      96,600
	inventory	$      43,000
	buildings & equipment,net of depreciation	$    235,900	(227000+12100-3200)
	Total Assets	$    386,765
	liabilities& stockholder's Equity
	Accounts payable	$      88,200
	note payable	$      29,200
	common stock	$    180,000
	Retained earnings	$      89,365	(61300+28065)
	Total Liabilities & stockholders equity	$    386,765

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