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 $ 14,600 55,000 43,500 223,000 $ 336, 100 $ 74,500 15,000 180,000 66,600 $ 336,100 The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $244,000 for May. Of these sales, $73,200 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 $130,000 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 $40,500. d. Selling and administrative expenses for May are budgeted at $84,300, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,950 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $430 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $7,800 will be purchased for cash during May. g. During May, the company will borrow $20,700 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

Solutions:

Minden Company
Schedule of Expected Cash collection
Cash Sales of May	73200
Collection of Accounts Receivable:
April 30 Balance	55000
May Credit sales [(244000-73200)*1/2]	85400
Total Cash collection	213600
Minden Company
Schedule of Expected Cash disbursement
April 30 Accounts payable balance	74500
May Purchases (130000*40%)	52000
Total Cash disbursement	126500
Minden Company
Cash Budget
Beginning Cash Balance	14600
Add: Collection from customers	213600
Total cash available	228200
Less: Cash Disbursement:
Purchase of Inventory	126500
Selling and administrative expenses	84300
Purchases of Equipment	7800
Total Cash disbursement	218600
Excess of cash available over disbursement	9600
Financing:
Borrowing-Note	20700
Repayments-Note	-15000
Interest	-430
Total Financing	5270
Ending cash Balance	14870
Minden Company
Budgeted Income Statement
For the month of May
Sales	244000
Less: Cost of goods sold (43500+130000-40500)	133000
Gross Margin	111000
Less: Selling and administrative expenses (84300+3950)	88250
Net Operating income	22750
Less: Interest expense	430
Net Income	22320
Minden Company
Budgeted Balance Sheet
May-31
Assets
Cash	14870
Accounts receivable	85400
Inventory	40500
Building and Equipment, net of Depreciation (223000+7800-3950)	226850
Total Assets	367620
Liabilities and Stockholders' Equity
Accounts Payable (130000*60%)	78000
Notes payable	20700
Common stock	180000
Retained earnings (66600+22320)	88920
Total Liabilities and Stockholders' Equity	367620