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	$	16,700
Accounts receivable		75,500
Inventory		37,000
Buildings and equipment, net of depreciation		258,000
Total assets	$	387,200
Liabilities and Stockholders’ Equity
Accounts payable	$	86,750
Note payable		15,700
Common stock		180,000
Retained earnings		104,750
Total liabilities and stockholders’ equity	$	387,200

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

1. Sales are budgeted at $240,000 for May. Of these sales, $72,000 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 $118,000 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 $31,500.

4. Selling and administrative expenses for May are budgeted at $93,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,400 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $160 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $15,000 will be purchased for cash during May.

7. During May, the company will borrow $26,600 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

Required Budgets are as prepared below:

Particulars	Amount ($)
May Sales	240,000
Cash sales	72,000
Credit sales (Total sales minus cash sales)	168,000
Collected in May (168,000/2)	84,000
Accounts Receivable	84,000
Minden Company
Schedule of expected Cash collections
For the Month ended May 31
	Month
Particulars	May
Cash Sales May	72,000
Collections on Accounts Receivable
April 30 balance	75,500
May Sales	84,000
Total cash Receipts	231,500
Particulars	Amount ($)
May purchases	118,000
Paid in may (40%)	47,200
Paid in June (60%)	70,800
Minden Company
Schedule of expected Cash Disbursements
For the Month ended May 31
	Month
Particulars	May
April 30 account payable balance	86,750
May purchases	47,200
Total cash payments	133,950
Minden Company
Cash Budget
For the month of May
	Month
Particulars	May
Beginning Cash balance	$16,700
Add: Collection from customers	$231,500
Total cash available	$248,200
less: cash disbursement
Purchase of inventory	($133,950)
Selling and administrative expense	($93,500)
Purchase of equipment	($15,000)
Total cash disbursement	($242,450)
Excess of cash available over disbursement	$5,750
Financing
Borrowing-note	$26,600
Repayment-note	($15,700)
Interest	($160)
Total financing	$10,740
Ending Cash balance	$16,490
Minden Company
Budgeted Income Statement
May-31
Particulars	Amount ($)	Amount ($)
Sales		240,000
Less: Cost of goods sold (37,000+118,000-31,500)		123,500
Gross Profit		116,500
Less:
Depreciation	2,400
Selling and administrative exp	93,500	95,900
Net Profit before interest		20,600
Interest expense	$160
Net operating Income		20,440
Minden Company
Budgeted balance Sheet
May-31
Assets
Cash	16,490
Accounts Receivable	84,000
Inventory	31,500
Building and Equipment Net (258,000+15,000-2,400)	270,600
Total assets	402,590
Liabilities and Stockholders' Equity
Accounts Payable purchases	70,800
Note Payable	26,600
Common Stock	180,000
Retained earnings (104,750+20,440)	125,190
Total liabilities and stockholders' equity	402,590