Question

Problem 8-19 Cash Budget; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]

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	$	16,700
Accounts receivable		75,500
Inventory		37,000
Buildings and equipment, net of depreciation		258,000
Total assets	$	387,200
Liabilities and Stockholders’ Equity
Accounts payable	$	86,750
Note payable		15,700
Common stock		180,000
Retained earnings		104,750
Total liabilities and stockholders’ equity	$	387,200

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

1. Sales are budgeted at $240,000 for May. Of these sales, $72,000 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 $118,000 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 $31,500.

4. Selling and administrative expenses for May are budgeted at $93,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,400 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $160 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $15,000 will be purchased for cash during May.

7. During May, the company will borrow $26,600 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	72000
Collection of Accounts Receivable:
April 30 Balance	75500
May Credit sales [(520000-156000)*1/2]	84000
Total Cash collection	231500
Minden Company
Schedule of Expected Cash disbursement
April 30 Accounts payable balance	86750
May Purchases (118000*40%)	47200
Total Cash disbursement	133950
Minden Company
Cash Budget
Beginning Cash Balance	16700
Add: Collection from customers	231500
Total cash available	248200
Less: Cash Disbursement:
Purchase of Inventory	133950
Selling and administrative expenses	93500
Purchases of Equipment	15000
Total Cash disbursement	242450
Excess of cash available over disbursement	5750
Financing:
Borrowing-Note	26600
Repayments-Note	-15700
Interest	-160
Total Financing	10740
Ending cash Balance	16490
Minden Company
Budgeted Income Statement
For the month of May
Sales	240000
Less: Cost of goods sold (37000+118000-31500)	123500
Gross Margin	116500
Less: Selling and administrative expenses (93500+2400)	95900
Net Operating income	20600
Less: Interest expense	160
Net Income	20440
Minden Company
Budgeted Balance Sheet
May-31
Assets
Cash	16490
Accounts receivable	84000
Inventory	31500
Building and Equipment, net of Depreciation (258000-2400+15000)	270600
Total Assets	402590
Liabilities and Stockholders' Equity
Accounts Payable (118000*60%)	70800
Notes payable	26600
Common stock	180000
Retained earnings (104750+84700)	125190
Total Liabilities and Stockholders' Equity	402590