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	$	18,700
Accounts receivable		70,250
Inventory		41,250
Buildings and equipment, net of depreciation		230,000
Total assets	$	360,200
Liabilities and Stockholders’ Equity
Accounts payable	$	72,250
Note payable		13,700
Common stock		180,000
Retained earnings		94,250
Total liabilities and stockholders’ equity	$	360,200

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

1. Sales are budgeted at $214,000 for May. Of these sales, $64,200 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 $122,000 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 $47,500.

4. Selling and administrative expenses for May are budgeted at $85,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,050 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $390 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $16,300 will be purchased for cash during May.

7. During May, the company will borrow $24,500 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

Solutions:

Minden Company
Schedule of Expected Cash collection
Cash Sales of May	64200
Collection of Accounts Receivable:
April 30 Balance	70250
May Credit sales [(214000-64200)*1/2]	74900
Total Cash collection	209350
Minden Company
Schedule of Expected Cash disbursement
April 30 Accounts payable balance	72250
May Purchases (122000*40%)	48800
Total Cash disbursement	121050
Minden Company
Cash Budget
Beginning Cash Balance	18700
Add: Collection from customers	209350
Total cash available	228050
Less: Cash Disbursement:
Purchase of Inventory	121050
Selling and administrative expenses	85500
Purchases of Equipment	16300
Total Cash disbursement	222850
Excess of cash available over disbursement	5200
Financing:
Borrowing-Note	24500
Repayments-Note	-13700
Interest	-390
Total Financing	10410
Ending cash Balance	15610
Minden Company
Budgeted Income Statement
For the month of May
Sales	214000
Less: Cost of goods sold (41250+122000-47500)	115750
Gross Margin	98250
Less: Selling and administrative expenses (85500+2050)	87550
Net Operating income	10700
Less: Interest expense	390
Net Income	10310
Minden Company
Budgeted Balance Sheet
May-31
Assets
Cash	15610
Accounts receivable	74900
Inventory	47500
Building and Equipment, net of Depreciation (230000-2050+16300)	244250
Total Assets	382260
Liabilities and Stockholders' Equity
Accounts Payable (122000*60%)	73200
Notes payable	24500
Common stock	180000
Retained earnings (94250+10310)	104560
Total Liabilities and Stockholders' Equity	382260