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 $ 10,000 62,750 32,750 219,000 $ 324,500 $ 69,000 22,700 180,000 52,800 324,500 $ The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $254,000 for May. Of these sales, $76,200 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 $137,000 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 $45,000. d. Selling and administrative expenses for May are budgeted at $98,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,550 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $350 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $8,700 will be purchased for cash during May. g. During May, the company will borrow $27,400 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

76200 Minden Company Schedule of Expected Cash Collections Cash Sales-May Collection on Accounts Receivable: April 30 balance May Sales Total Cash Receipts Credit Sales = $254,000 - $76,200 = $177,800 Collection = 50% * $177,800 = $88,900 62750 88900 227850 Minden Company Schedule of Expected Cash Disbursements April 30 Accounts Payable Balance May Purchases Total Cash payments May Purchase Payment = 40% * $137,000 = $54,800 69000 54800 123800

10000 227850 2378 50 Minden Company Cash Budget For the Month of May Beginning Cash balance Add Collections from customers Total cash available Less Cash disbursements: Purchase of inventory Selling and administrative expenses Purchase of equipment Total Cash disbursements Excess of cash available over disbursements Financing: Borrowing-note Repayment-note Interest Total Financing Ending cash balance 123800 98400 8700 230900 6950 27400 -22700 -350 4350 11300

254000 Minden Company Budgeted Income Statement For the Month of May Sales Cost of Goods sold: Beginning Inventory 32750 Add: Purchases 137000 Cost of Goods available for Sale 169750 Less: Ending Inventory 45000 Cost of Goods sold Gross Margin Selling and Administrative Expenses Net Operating Income Interest Net Income 124750 129250 103950 25300 350 24950

Minden Company Budgeted Balance Sheet May 31 Assets Cash Accounts Receivable Inventory Building and Equipment, Net of Depreciation Total Assets Liabilities and Stockholders' Equity Accounts Payable Notes Payable Common Stock Retained Earnings Total Liabilities and Stockholders' Equity 11300 88900 45000 222150 367350 82200 27400 180000 77750 367350 Accounts Receivable = ($254,000 - $76,200) * 50% = $88,900 Building and Equipment, Net of Depreciation = $219,000 + $8,700 - $5,550 = $222,150 Accounts Payable = $137,000 * 60% = $82,200 Retained Earnings = $52,800 + $ 24,950 = $77,750