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	$	9,000
Accounts receivable		54,000
Inventory		30,000
Buildings and equipment, net of depreciation		207,000
Total assets	$	300,000
Liabilities and Stockholders’ Equity
Accounts payable	$	63,000
Note payable		14,500
Common stock		180,000
Retained earnings		42,500
Total liabilities and stockholders’ equity	$	300,000

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

1. Sales are budgeted at $220,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. Each month’s credit sales are collected 60% in the month of sale and 40% in the month following the sale. All of the April 30 accounts receivable will be collected in May.

2. Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase. All of the April 30 accounts payable to suppliers will be paid during May.

3. The May 31 inventory balance is budgeted at $40,000.

4. Selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $6,500 will be purchased for cash during May.

7. During May, the company will borrow $20,000 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