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	$	16,500
Accounts receivable		67,000
Inventory		32,000
Buildings and equipment, net of depreciation		249,000
Total assets	$	364,500
Liabilities and Stockholders’ Equity
Accounts payable	$	68,750
Note payable		20,500
Common stock		180,000
Retained earnings		95,250
Total liabilities and stockholders’ equity	$	364,500

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

1. Sales are budgeted at $241,000 for May. Of these sales, $72,300 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.

2. Purchases of inventory are expected to total $191,000 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 $86,000.

4. Selling and administrative expenses for May are budgeted at $76,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,300 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $170 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $6,600 will be purchased for cash during May.

7. During May, the company will borrow $27,000 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 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.

Required:

1-a.

Prepare a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases.. Schedule of Expected Cash Collections Cash sales—May Collections on account receivable: April 30 balance May sales Total cash receipts $0 Schedule of Expected Cash Disbursements April 30 accounts payable balance May purchases Total cash payments $0 Prepare a cash budget for May. Minden Company Cash Budget For the Month of May Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Purchase of inventory Selling and administrative expenses Purchases of equipment Total cash disbursements 0 Excess of cash available over disbursements 0 Financing: Borrowing—note Repayments—note Interest Total financing 0 Ending cash balance $0 2. Prepare a budgeted income statement for May. Minden Company Budgeted Income Statement For the Month of May Cost of goods sold: 0 0 0 0 $0 3. Prepare a budgeted balance sheet as of May 31. Minden Company Budgeted Balance Sheet May 31 Assets Total assets $0 Liabilities and Stockholders’ Equity Total liabilities and stockholders’ equity $0

Answer 1

1.a	Schedule of expected cash collections
	Cash Sales - May					$    72,300
	Collections on account receivable
	April 30 Balance					67,000
	May Sales (241,000-72,300/2)					84,350
	Total Cash Receipts					$ 2,23,650
1.b	Schedule of expected cash disbursement
	April 30 Accounts payable balance					$    68,750
	May Purchases (191,000*40%)					76,400
	Total cash payments					$ 1,45,150
1.c				Minden Company
				Cash Budget
				For the month of May
	Beginning cash balance							$     16,500
	Add: Collections from customers							2,23,650
	Total cash available							2,40,150
	Less: Cash disbursements
	Purchase of inventory							1,45,150
	Selling and administrative expenses							76,200
	Purchases of equipment							6,600
	Total cash disbursements							2,27,950
	Excess of cash available over disbursement							12,200
	Financing:
	Borrowing - note							27,000
	Repayment - Note							20,500
	Interest							170
	Total financing							6,330
	Ending cash balance							$     18,530
2				Minden Company
				Budgeted Income Statement
				For the month of May
	Sales							$ 2,41,000
	Cost of Goods Sold							1,37,000
	(32,000+191,000-86,000)
	Gross Profit							1,04,000
	Selling and administrative expenses							76,200
	Depreciation							5,300
	Interest							170
	Net Income							$     22,330
3				Minden Company
				Budgeted Income Statement
				May 31
	Assets
	Cash							$     18,530
	Accounts Receivable							84,350
	Inventory							86,000
	Building and equipment, net of depreciation							2,50,300
	(249,000+6,600-5,300)
	Total Assets							$ 4,39,180
	Liabilities and Stockholders' Equity
	Accounts Payable (191,000*60%)							$ 1,14,600
	Note Payable							27,000
	Common Stock							1,80,000
	Retained Earnings (95,250+22,330)							1,17,580
	Total Liabilities and Stockholders' Equity							$ 4,39,180