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	$	10,000
Accounts receivable		62,750
Inventory		32,750
Buildings and equipment, net of depreciation		219,000
Total assets	$	324,500
Liabilities and Stockholders’ Equity
Accounts payable	$	69,000
Note payable		22,700
Common stock		180,000
Retained earnings		52,800
Total liabilities and stockholders’ equity	$	324,500

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

1. Sales are budgeted at $254,000 for May. Of these sales, $76,200 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 $137,000 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 $45,000.

4. Selling and administrative expenses for May are budgeted at $98,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,550 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $350 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $8,700 will be purchased for cash during May.

7. During May, the company will borrow $27,400 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 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-a)	Schedule of Expected cash collection
	Cash sales-May					76,200
	Collections on account receivable
	April 30 balance					62,750
	May sales		(254000-76200)*50%			88900
	total cash recepits					227,850
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					69,000
	May purchases		(137000*40%)			54800
	total cash payments					123,800
1-b)	Cash Budget
	Beginning cash balance					10,000
	Add Collections from customers					227,850
	total cash available					237,850
	less Cash disbursements
	purchase of inventoru					123,800
	selling and administrative expense					98,400
	purchase of Equipment					8,700
	total cash disbursements					230,900
	Excess of cash available over disbursements					6,950
	financing:
	borrowing -note					27,400
	Repayments-note					-22,700
	interest					-350
	total financing					4,350
	Ending cash balance					11,300
	Budgeted income statement
	sales					254,000
	cost of goods sold:
	beginning inventory				32,750
	purchases				137,000
	goods available for sale				169,750
	ending invnetory				45,000
	cost of goods sold:					124,750
	Gross margin					129,250
	Selling and administrative expesne					103,950
	net operating income					25,300
	interest expesne					350
	net income					24,950
	Budgeted balance sheet
	Assets
	Cash					11,300
	Account receivable					88900
	inventory					45,000
	buildings & equipment,net of depreciaiton					222150
	total Assets					367,350
	Laibilities & stockholder's Equity
	Accounts payable					82200
	note payable					27,400
	common stock					180,000
	Retained earnings					77,750
	total liabilities & stockholders equity					367350