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	$	14,500
Accounts receivable		72,750
Inventory		31,750
Buildings and equipment, net of depreciation		209,000
Total assets	$	328,000
Liabilities and Stockholders’ Equity
Accounts payable	$	69,500
Note payable		16,000
Common stock		180,000
Retained earnings		62,500
Total liabilities and stockholders’ equity	$	328,000

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

1. Sales are budgeted at $247,000 for May. Of these sales, $74,100 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 $172,000 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 $58,500.

4. Selling and administrative expenses for May are budgeted at $87,600, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,850 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $385 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $13,400 will be purchased for cash during May.

7. During May, the company will borrow $22,900 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

1-a)	Schedule of Expected cash collection
	Cash sales-May					74,100
	Collections on account receivable
	April 30 balance					72,750
	May sales		(247000-74100)*50%			86450
	total cash recepits					233,300
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					69,500
	May purchases		(172000*40%)			68800
	total cash payments					138,300
1-b)	Cash Budget
	Beginning cash balance					14,500
	Add Collections from customers					233,300
	total cash available					247,800
	less Cash disbursements
	purchase of inventoru					138,300
	selling and administrative expense					87,600
	purchase of Equipment					13,400
	total cash disbursements					239,300
	Excess of cash available over disbursements					8,500
	financing:
	borrowing -note					22,900
	Repayments-note					-16,000
	interest					-385
	total financing					6,515
	Ending cash balance					15,015
	Budgeted income statement
	sales					247,000
	cost of goods sold:
	beginning inventory				31,750
	purchases				172,000
	goods available for sale				203,750
	ending invnetory				58,500
	cost of goods sold:					145,250
	Gross margin					101,750
	Selling and administrative expesne					94,450
	net operating income					7,300
	interest expesne					385
	net income					6,915
	Budgeted balance sheet
	Assets
	Cash					15,015
	Account receivable					86450
	inventory					58,500
	buildings & equipment,net of depreciaiton					215550
	total Assets					375,515
	Laibilities & stockholder's Equity
	Accounts payable					103200
	note payable					22,900
	common stock					180,000
	Retained earnings					69,415
	total liabilities & stockholders equity					375515