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 $ 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: 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. 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. The May 31 inventory balance is budgeted at $40,500. 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. 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.) New refrigerating equipment costing $7,800 will be purchased for cash during May. 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 collections

Cash sales-May	73,200
Collections on account receivable:
April 30 balance	55,000
May sales [(244,000-73,200) / 2]	85,400
Total cash receipts	213,600

2. Schedule of expected cash disbursements

April 30 accounts payable balance	74,500
May Purchases (130,000*40%)	52,000
Total cash Payments	126,500

3. Cash budget

Beginning cash balance	14,600
Add: Collections from customers	213,600
Total cash available (A)	228,200
Less: Cash disbursement
Purchase of inventory	126,500
Selling and administration expense	84,300
Purchase of equipment	7,800
Total cash disbursement (B)	218,600
Excess of cash available over disbursements (A-B)	9,600
Financing:
Borrowing-note	20,700
Repayments-note	(15,000)
Interest	(430)
Total financing	5,270
Ending cash balance	14,870

4. Income statement

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

5. Balance sheet

Assets
Cash	14,870
Accounts receivable [(244,000-73,200) / 2]	85,400
Inventory	40,500
Buildings and equipment,net of depreciation (223,000+7,800-3,950)	226,850
Total assets	367,620
Liabilities and stockholder's equity
Accounts payable (130,000*60%)	78,000
Note payable	20,700
Common stock	180,000
Retained earnings (66,600+22,320)	88,920
Total liabilities and stockholder's equity	367,620