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 S 16,500 67,000 32,000 249,000 Accounts receivable Inventory Buildings and equipment, net of depreciation $364,500 Total assets Liabilities and Stockholders Equity Accounts payable Note payable S 68,750 20,500 180,000 95,250 Common stock Retained earnings $ 364,500 Total liabilities and stockholders' equity The company is in the process of preparing a budget for May and has assembled the following data: a. 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. b. 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. c. The May 31 inventory balance is budgeted at $86,000. d. Selling and administrative expenses for May are budgeted at $76,200, exclusive of depreciation. These expenses willl be paid in cash. Depreciation is budgeted at $5,300 for the month. e. 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.) f. New refrigerating equipment costing $6,600 will be purchased for cash during May. g. 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.

Answer 1

Solution

Minden Company

1. Calculation of expected cash collections for May:

Minden Company
Statement of expected cash collections for May:
Cash sales	$72,300
Collection of April Sales	$67,000
Collection of May sales	$84,350
Total cash collections for May	$223,650

Note:

Credit sales for May = ½ x (241,000 – 72,300) = $168,700 x ½ = $84,350

2. Calculation of expected cash disbursements for merchandise purchases for May:

Minden Company
Statement of expected cash disbursement for merchandise purchases in May:
Payment for April purchases	$68,750
payment for May purchases	$76,400
Total cash disbursements for merchandise purchases in May	$145,150

Note – payment for purchases made in May = 191,000 x 40% = $76,400

3. Cash budget for May:

Minden Company
Cash Budget for May
Beginning cash balance	$16,500
Expected cash collections	$223,650
Available cash	$240,150
Cash Disbursements:
for merchandise purchases	$145,150
selling and administrative expenses	$76,200
Purchase of equipment	$6,600
Total disbursements	$227,950
Excess of cash over disbursements	$12,200
Financing:
Borrowings	$27,000
Repayments	($20,500)
Interest	($170)
Total financing	$6,330
Ending Cash balance	$18,530

4. Budgeted income statement for May:

Minden Company
Budgeted Income Statement
Sales		$241,000
Cost of goods sold:
Beginning inventory	$32,000
add: purchases	$191,000
cost of goods available for sale	$223,000
Less: ending inventory	($86,000)
Cost of goods sold		$137,000
Gross Margin		$104,000
selling and administrative expenses		$81,500
Net Operating Income		$22,500
Interest Expense		$170
Net Income		$22,330

Note: Depreciation expense of $5,300 is included in the selling and administration expenses. Depreciation is a non-cash expense. Hence does not form part of cash budget statement created above.

However, depreciation of $5,300 is a monthly expense and would form part of the income statement.

5. Budgeted Balance Sheet

Minden Company
Budgeted Balance Sheet
as on May 31
Assets:
Cash	$18,530
Accounts Receivable	$84,350
Inventory	$86,000
Building and equipment, net of depreciation	$250,300
Total Assets	$439,180
Liabilities and Stockholders' Equity:
Liabilities
Accounts Payable	$114,600
Note Payable	$27,000
Common Stock	$180,000
Retained Earnings	$117,580
Total Liabilities and Stockholders' Equity	$439,180

Notes:

1. Accounts Receivable = (241,000 – 72,300) x 50% = $84,350

2. Building and equipment, net of depreciation –

Beg. Balance = $249,000

Add: purchase of equipment = $6,600

Total = $255,600

Less: depreciation = $5,300

Building and equipment, net of depreciation May 31 = 250,300

3. Accounts payable balance = 191,000 x 60% = $114,600
4. Retained Earnings –

Beg. Balance = $95,250

Add: net income = $22,330

Ending balance = $117,580