Question

Problem 8-19 (REV) Cash Budget; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]

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	$	14,600
Accounts receivable		55,000
Inventory		43,500
Buildings and equipment, net of depreciation		223,000
Total assets	$	336,100
Liabilities and Stockholders’ Equity
Accounts payable	$	74,500
Note payable		15,000
Common stock		180,000
Retained earnings		66,600
Total liabilities and stockholders’ equity	$	336,100

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

1. Sales are budgeted at $244,000 for May. Of these sales, $73,200 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.

2. Purchases of inventory are expected to total $130,000 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 $40,500.

4. Selling and administrative expenses for May are budgeted at $84,300, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,950 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $430 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $7,800 will be purchased for cash during May.

7. During May, the company will borrow $20,700 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 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

SOLUTION

1. Schedule of expected cash collection-

Particulars	Amount ($)
Cash sales for May	73,200
Accounts receivable collection-
April	55,000
May (244,000-73,200)/2	85,400
Total	213,600

2. Schedule of expected cash disbursements-

Particulars	Amount ($)
Accounts payable	74,500
May purchase (130,000*40%)	52,000
Total	126,500

3. Cash budget-

Particulars	Amount ($)
Beginning cash balance	14,600
Add: Collections from customers	213,600
Total cash available (A)	228,200
Less: Cash disbursements
Purchase of inventory	126,500
Selling and administrative expense	84,300
Purchase of Equipment	7,800
Total cash disbursements (B)	218,600
Excess of cash available over disbursements (A-B)	9,600
Financing-
Borrowing- Note	20,700
Repayment - Note	(15,000)
Interest	(430)
Total financing	5,270
Ending cash balance (4,850+1,780)	14,870

4. Budgeted income statement-

Particulars	Amount ($)	Amount ($)
Sales		244,000
Cost of goods sold
Beginning inventory	43,500
Purchases	130,000
Goods available for sale	173,500
Less: Ending inventory	40,500
Cost of goods sold		133,000
Gross margin		111,000
Selling and administrative expenses (84,300+3,950)		88,250
Net operating income		22,750
Interest expense		430
Net income		22,320

5. Budgeted balance sheet-

Particulars	Amount ($)
Assets
Cash	14,870
Accounts receivable (244,000-73,200)/2	85,400
Inventory	40500
Building and Equipment (223,000+7,800-3,950)	226,850
Total Assets	367,620
Liabilities and stockholder's Equity
Accounts payable (130,000*60%)	78,000
Notes payable	20,700
Common stock	180,000
Retained earnings (66,600+22,320)	88,920
Total Liabilities and stockholder's Equity	367,620