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	$	9,000
Accounts receivable		54,000
Inventory		30,000
Buildings and equipment, net of depreciation		207,000
Total assets	$	300,000
Liabilities and Stockholders’ Equity
Accounts payable	$	63,000
Note payable		14,500
Common stock		180,000
Retained earnings		42,500
Total liabilities and stockholders’ equity	$	300,000

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

1. Sales are budgeted at $200,000 for May. Of these sales, $60,000 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 $120,000 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 $40,000.

4. Selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $6,500 will be purchased for cash during May.

7. During May, the company will borrow $20,000 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. 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

1.expected cash collection from customers in may
particulars	Amount($)
opening balance of accounts receivable	54000
cash sales for may	60000
collection from debtors of credit sale in may	70000
Total expected cash flow	184000

2. expected cash payments to merchandise purchases for May
particulars	Amount($)
opening balance of accounts payble	63000
payment to creditors for purchase in may	48000
	111000

3.Cash Budget for the month may
Particulars	Amount($)	Amount($)
Opening balance		9000
add:receipts
cash sales	60000
collection from accounts	124000
Note payble(New)	20000
Total Receipts		204000
less:Payments
Payment on account	111000
selling and administrative expenses	72000
Note paid	14600
Purchase of equipment	6500
Total Payments		204100
Closing Balance		8900

4.INCOME STATEMENT FOR THE MONTH MAY(BUDJETED)
PARTICULARS	AMOUNT($)	AMOUNT($)
Opening stock	30000
Add:Purchase	120000
Less:sales	200000
Less:closing stock	40000
Gross profit /loss		90000
Add:incomes	0
Less:expenses
selling and administrative	72000
Depreciation	2000
Interest paid	100	-74100
Net profit / loss		15900

5.BUDGETED BALANCE SHEET OF MAY31
LIABILITIES&STOCKHOLDERS EQUITY	AMOUNT($)	ASSETS	AMOUNT($)
Accounts Payable	72000	Cash	8900
Note payable	20000	Accounts receivable	70000
Common stock	180000	Inventory	40000
Retained Earnings(april balance - may budgeted profit)	58400	Building and equipment(net of depreciation)	211500
TOTAL	330400	TOTAL	330400