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 $ 9,500 56,500 53,250 234,000 Total assets $ 353,250 Liabilities and Stockholders' Equity Accounts payable Note payable Common stock Retained earnings $ 79,000 20,000 180,000 74,250 Total liabilities and stockholders' equity $ 353,250 The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $299,000 for May. Of these sales, $89,700 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 $169,000 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 $42,000. d. Selling and administrative expenses for May are budgeted at $89,700, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,250 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $320 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $7,200 will be purchased for cash during May. g. During May, the company will borrow $25,200 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Answer 1

Solution:

1a.)Minden Company

Schedule of Expected Cash Collections

Cash sales - May	$89,700
Collections on account receivable:
April 30 balance	$56,500
May sales	$104,650
Total cash receipts	$250,850

Minden Company

Schedule of Expected Cash Disbursement

April 30 account payable balance	$79,000
May purchase	$67,600
Total cash payments	$146,600

1 b)

Minden Company

Cash Budget

For the Month of May

Beginning cash balance	$9,500
Add: collections from customers	$250,850
Total cash available	$260,350
Less: cash disbursements:
Purchase of inventory	$146,600
Selling and administrative expenses	$89,700
Purchase of equipment	$7,200
Total cash disbursements	$243,500
Excess of cash available over disbursements	$16,850
Financing:
Borrowing - note	$25,200
Repayment - note	$(20,000)
Interest	$(320)
Total financing	$4,880
Ending cash balance	$21,730

2.)Minden Company

Budgeted income statement

For the Month of May

Sales		$299,000
Cost of goods sold:
Beginning inventory	$53,250
Purchase	$169,000
Goods available for sale	$222,250
Ending inventory	$42,000
Cost of goods sold		$180,250
Gross margin		$118,750
Selling and administrative expenses		$91,950
Net operating income		$26,800
Interest expense		$(320)
Net income		$26,480

3.

Minden Company

Budgeted balance sheet

May 31

Assets:
Cash	$21,730
Account receivable	$104,650
Inventory	$42,000
Building and equipment, net of depreciation	$238,950
Total assets	$407,330
Liabilities and stockholders'equity:
Account payable	$101,400
Note payable	$25,200
Common stock	$180,000
Retained earnings	$100,730
Total liabilities and stockholders'equity	$407,330

1- a.

Schedule of cash receipts:

Collections on account receivable for May sales = 50% × $209,300(299,000 - 89,700) =$104,650

Schedule of cash payments for purchase:

May purchase = 40% × $169,000 =$67,600

2. Selling and administrative expenses:

$89700 + $2250 = $91,950

3.

Assets:

Account receivable =50% × $209300 =$104,650

Building and equipment, net of depreciation

=$234,000+$7200 - $2,250 =$238,950

Liabilities and stockholders'equity:

Account payable =60% × $169000 =$101,400

Retained earnings =$74,250 +$26,480 =$100,730