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 $ 11,500 64,750 47,000 220,000 $ 343, 250 $ 70,750 19,900 180,000 72,600 $ 343, 250 The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $290,000 for May. Of these sales, $87,000 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. b. Purchases of inventory are expected to total $210,000 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 $79,500. d. Selling and administrative expenses for May are budgeted at $96,300, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,800 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $450 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $7,600 will be purchased for cash during May. g. During May, the company will borrow $23,700 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year. 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 -

1. Answer -

Expected cash collections from customers for May = $253250

Calculation:

As per given information,

Budgeted sales = $290000

Cash sales = $87000

And remainder (credit sales) = $290000 - $87000 = $203000

But, one-half of the credits sales are collected in the month of the sales are made.

So,

Collections of credit sales = $203000 * (1/2) = $101500

And also April 30 accounts receivable will be collected in May i.e. $64750

Therefore,

Expected cash collections from customers for May:

= Cash sales + Collections of credit sales + April 30 accounts receivable

= $87000 + $101500 + $64750

= $253250

2. Answer -

Expected cash disbursements for merchandise purchases of May = $154750

Calculation:

As per given information,

Expected purchase of inventory = $210000

But, 40% of purchases are paid in month of purchase.

So, Payment for purchases = $210000 * 40% = $84000

And also April 30 accounts payable will be paid in May i.e. $70750

Therefore,

Expected cash disbursements for merchandise purchases of May:

= Payment for purchases + April 30 account payable

= $84000 + $70750

= $154750

3. Answer -

Minden Company
Cash Budget
For the Month of May
Beginning acsh balance	$11500
Add: Collection from customers	$253250
Total cash available		$264750
Less: Cash disbursement
Purchase of merchandise	$154750
Selling and administrative expenses	$96300
Purchases of equipment	$7600
Total cash disbursements		$258650
Excess of cash available over disbursements		$6100
Financing:
Borrowing (note)	$23700
Repayment (note)	($19900)
Interest	($450)
Total financing		$3350
Ending cash balance		$9450

Calculation:

1. Total cash available:

= Beginning cash balance + Collection from customers

= $11500 + $253250

= $264750

2. Total cash disbursements:

= Purchase of merchandise + Selling and administrative expenses + Purchase of equipment

= $154750 + $96300 + $7600

= $258650

3. Excess of cash available over cash disbursement:

= Total cash available - Total cash disbursements

= $264750 - $258650

= $6100

4. Total financing:

= Borrowing - Repayment - Interest paid

= $23700 - $19900 - $450

= $3350

5. Ending cash balance:

= Excess of cash available over cash disbursement + Total financing

= $6100 + $3350

= $9450

Note - Repayment (note) balance is previous note payable i.e. $19900

4. Answer -

Minden Company
Budgeted Income Statement
For the Month of May
Sales	$290000
Cost of goods sold	($177500)
Gross margin	$112500
Selling and administrative expenses	($96300)
Depreciation expense	($5800)
Net operating income	$10400
Interest expense	($450)
Net income	$9950

Calculation:

1. Cost of goods sold:

= Beginning inventory + Purchases - Ending inventory

= $47000 + $210000 - $79500

= $177500

2. Gross margin:

= Sales - Cost of goods sold

= $290000 - $177500

= $112500

3. Net operating income:

= Gross margin - (Selling and administrative expenses + Depreciation expense)

= $112500 - ($96300 + $5800)

= $10400

4. Net income:

= Net operating income - Interest expense

= $10400 - $450

= $9950

5. Answer -

Minden Company
Budgeted Balance Sheet
As of May 31
Assets:
Cash	$9450
Accounts receivable	$101500
Inventory	$79500
Buildings and equipment, net of depreciation	$221800
Total assets	$412250
Liabilities and Stockholders equity:
Accounts payable	$126000
Notes payable	$23700
Common stock	$180000
Retained earnings	$82550
Total liabilities and stockholders equity	$412250

Calculation:

1. Accounts receivable:

One-half of the credits sales are collected in the month of the sales are made and remainder i.e. one-half is collected in following month.

So,

Accounts receivable = Credit sales * (1/2)

= $203000 * (1/2)

= $101500

2. Buildings and equipment, net of depreciation:

= Beginning balance of buildings and equipment + Purchase of equipment - depreciation expense

= $220000 + $7600 - $5800

= $221800

3. Accounts payable:

40% of purchases are paid in month of purchase are made and remainder paid in following month i.e. 60%.

= Expected purchase * 60%

= $210000 * 60%

= $126000

4. Retained earnings:

= Beginning balance of retained earnings + Net income

= $72600 + $9950

= $82550