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	$	12,000
Accounts receivable		77,500
Inventory		42,000
Buildings and equipment, net of depreciation		225,000
Total assets	$	356,500
Liabilities and Stockholders’ Equity
Accounts payable	$	78,250
Note payable		19,300
Common stock		180,000
Retained earnings		78,950
Total liabilities and stockholders’ equity	$	356,500

  

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

  

a.	Sales are budgeted at $231,000 for May. Of these sales, $69,300 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 $139,000 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 $55,000.
d.	Selling and administrative expenses for May are budgeted at $83,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,200 for the month.
e.	The note payable on the April 30 balance sheet will be paid during May, with $155 in interest. (All of the interest relates to May.)
f.	New refrigerating equipment costing $12,500 will be purchased for cash during May.
g.	During May, the company will borrow $24,000 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-a.	Prepare a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases..

  

1-b.	Prepare a cash budget for May. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

  

2.	Prepare a budgeted income statement for May.

  

3.	Prepare a budgeted balance sheet as of May 31.

Answer 1

Schedule of Expected Cash Collection From Debtors And Disbursement to Suppliers % Of Payment or Particulars Month receipt Amount April Collection from debtors for sales: Receipt from account Receivable Receipt from account Receivable (Credit Sales - ($161,000 ) $77,500 $80,850 May 50% $1,58,350 Payment to Supplier for Purchase: April Payment for account payable Payment for purchases (Credit Purchase- $ 139,000) $78,250 $55,600 May 40% $1,33,850
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MINDEN COMPANY Cash Budget Statement for the month of May Amount $2,31,000 Particulars Sales Growth Rate Credit Sales $1,61,700 Receipts Cash Op Bal. Cash Sales Credit Sales Receipts $12,000 $69,300 $77,500 $80,850 April May (50%) Borrowings from Banks Total Cash Inflow $1,58,350 $24,000 $2,63,650 $78,250 $55,600 Payments Payment to supplier for purchase April May (40%) Administrative Expenses Payment of Notes Payable Notes Payable on April 30 Interest on Notes Payable for May Purchase of Refrigerator -$1,33,850 -$83,400 $19,300 $155 -$19,455 -$12,500 Total Cash Outflow - $2,49,205 Closing Bal $14,445

Minden Company Budgeted Balance Sheet as on May 31 Assets Current assets: Cash Investments Inventories Accounts receivable Pre-paid expenses Other Total current assets April $12,000 so $42,000 $77,500 $0 $0 $1,31,500 May $14,445 $0 $55,000 $80,850 $0 $0 $1,50,295 Fixed assets: Property and equipment Leasehold improvements Equity and other investments Less accumulated depreciation Total fixed assets April $2,25,000 $0 $0 $0 $2,25,000 May $2,31,300 $0 $0 $0 $2,31,300 Other assets: Goodwill Total other assets April $0 $0 May $0 $0 Total assets $3,56,500 $3,81,595 Liabilities and owner's equity Current liabilities: Accounts payable Accrued wages Notes Payable Income taxes payable Unearned revenue Other Total current liabilities April $78,250 $0 $19,300 $0 $0 $0 $97,550 May $83,400 $0 $24,000 $0 $0 $0 $1,07,400 Long-term liabilities: Mortgage payable Total long-term liabilities April $0 $0 May $0 $0 Owner's equity: Common Stock | Accumulated retained earnings Total owner's equity April $1,80,000 $78,950 $2,58,950 May $1,80,000 $94,195 $2,74,195 Total liabilities and owner's equity $3,56,500 $3,81,595

Budgeted Income Statement MINDEN COMPANY For the Month of May Financial Statements in U.S. Dollars Revenue Gross Sales Less: Sales Returns and Allowances Net Sales $2,31,000 $0 $2,31,000 Cost of Goods Sold Beginning Inventory Add: Purchases Freight-in Direct Labor Indirect Expenses Inventory Available Less: Ending Inventory Cost of Goods Sold $42,000 $1,39,000 $0 $0 $0 $1,81,000 $55,000 $1,26,000 Gross Profit (Loss) $1,05,000 Expenses $83,400 $0 $0 $0 $0 $0 $0 $6,200 $0 $0 $0 $155 $0 Selling & Administration Expense Amortization Bad Debts Bank Charges Charitable Contributions Commissions Contract Labor Depreciation Dues and Subscriptions Employee Benefit Programs Insurance Interest Legal and Professional Fees Licenses and Fees Miscellaneous Office Expense Payroll Taxes Postage Rent Repairs and Maintenance Supplies Telephone Travel Utilities Vehicle Expenses Wages Total Expenses SO $0 SO $0 $0 $0 $0 $0 $0 SO $0 $0 $0 $89,755 Net Operating Income $15,245 Other Income Gain (Loss) on Sale of Assets Interest Income Total Other Income $0 $0 $0 Net Income (Loss) $15,245

Minden Company (corrected) Budgeted Balance Sheet as on May 31 Assets Current assets: Cash Investments Inventories Accounts receivable Pre-paid expenses Other Total current assets April $12,000 $0 $42,000 $77,500 $0 $0 $1,31,500 May $14,445 $0 $55,000 $80,850 $0 $0 $1,50,295 Fixed assets: Property and equipment Leasehold improvements Equity and other investments Less accumulated depreciation Total fixed assets April $2,25,000 $0 $0 $0 $2,25,000 May $2,31,300 $0 $0 $0 $2,31,300 Other assets: Goodwill Total other assets April $0 $0 May $0 $0 Total assets $3,56,500 $3,81,595 Liabilities and owner's equity Current liabilities: Accounts payable Accrued wages Notes Payable Income taxes payable Unearned revenue Other Total current liabilities April $78,250 $0 $19,300 $0 $0 $0 $97,550 May $83,400 $0 $0 $0 $0 $0 $83,400 Long-term liabilities: INote payable Total long-term liabilities April $0 $0 May $24,000 $24,000 Owner's equity: Common Stock Accumulated retained earnings Total owner's equity April $1,80,000 $78,950 $2,58,950 May $1,80,000 $94,195 $2,74,195 Total liabilities and owner's equity $3,56,500 $3,81,595

Working Note- 1)Retained Earnings Opening Balance Add Profit for the month of may Closing Balance 78950 15245 94195 2)Notes Payable is classified as long term Liability as due date After 1 year 3) Account Receivables Opening Balance Credit sales (-)cash collected Closing Balance 77500 161700 158350 80850 4) Accounts Payable Opening Balance Credit purchases (-)cash paid Closing Balance 78250 139000 133850 83400 5) PPE Opening Balance purchases (-) Depreciation Closing Balance 225000 12500 6200 231300