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 9,100 77,250 40,000 239,000 365,350 $ $ 79,750 12,300 180,000 93,300 365,350 $ The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $266,000 for May. Of these sales, $79,800 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. E b. Purchases of inventory are expected to total $170,000 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 $44,500. Ed. Selling and administrative expenses for May are budgeted at $81,900, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,450 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $140 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $9,600 will be purchased for cash during May. g. During May, the company will borrow $23,400 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

1) Expected Cash Collection for May (Amounts in $)

Cash Sales	79,800
Collection of credit sales:
50% of credit sales for May [(266,000-79,800)*50%]	93,100
Accounts Receivable on April 30	77,250
Total expected cash collections	250,150

2) Expected Cash Disbursements for Purchases for May (Amounts in $)

Cash Payments for:
Accounts Payable as on April 30	79,750
40% of purchases in May ($170,000*40%)	68,000
Total expected cash disbursements for purchases	147,750

3) Cash Budget for the Month of May (Amounts in $)

Beginning Cash Balance	9,100
Total expected cash collections	250,150
Total Cash Available (A)	259,250
Cash disbursements:
Total cash payments for purchases	147,750
Selling and administrative expenses (except dep.)	81,900
Purchase of Refrigerator	9,600
Total cash disbursements (B)	239,250
Excess or Deficit of Cash (C = A-B)	20,000
Financing:
Issue of Notes Payable	23,400
Repayment of note	(12,300)
Interest on note	(140)
Total Financing (D)	10,960
Ending Cash Balance (C+D)	30,960

4) Budgeted Income Statement for May (Amounts in $)

Sales (A)		266,000
Cost of goods sold:
Beginning Inventory	40,000
Merchandise Purchases	170,000
Ending Inventory	(44,500)
Cost of goods sold (B)		165,500
Gross Profit (C = A-B)		100,500
Expenses:
Selling and Administrative expenses	81,900
Depreciation	6,450
Interest on Notes Payable	140
Total expenses (D)		88,490
Net Income (C-D)		12,010

5) Budgeted Balance Sheet as of May 31 (Amounts in $)

Minden Company
Balance Sheet
May 31
Assets
Cash	30,960
Accounts Receivable [(266,000-79,800)*50%]	93,100
Inventory	44,500
Buildings and equipment, net of depreciation (239,000+9,600-6,450)	242,150
Total assets	410,710
Liabilities and Stockholders Equity
Accounts Payable ($170,000*60%)	102,000
Note Payable	23,400
Common Stock	180,000
Retained Earnings (93,300+12,010 net income)	105,310
Total Liabilities and Stockholders Equity	410,710