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	$	11,100
Accounts receivable		72,500
Inventory		37,500
Buildings and equipment, net of depreciation		238,000
Total assets	$	359,100
Liabilities and Stockholders’ Equity
Accounts payable	$	68,000
Note payable		19,400
Common stock		180,000
Retained earnings		91,700
Total liabilities and stockholders’ equity	$	359,100

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

1. Sales are budgeted at $255,000 for May. Of these sales, $76,500 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 $189,000 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 $77,500.

4. Selling and administrative expenses for May are budgeted at $93,600, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,250 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $370 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $8,600 will be purchased for cash during May.

7. During May, the company will borrow $29,500 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 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					76,500
	Collections on account receivable
	April 30 balance					72,500
	May sales		(255000-76500)*50%			89250
	total cash recepits					238,250
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					68,000
	May purchases		(189000*40%)			75600
	total cash payments					143,600
1-b)	Cash Budget
	Beginning cash balance					11,100
	Add Collections from customers					238,250
	total cash available					249,350
	less Cash disbursements
	purchase of inventoru					143,600
	selling and administrative expense					93,600
	purchase of Equipment					8,600
	total cash disbursements					245,800
	Excess of cash available over disbursements					3,550
	financing:
	borrowing -note					29,500
	Repayments-note					-19,400
	interest					-370
	total financing					9,730
	Ending cash balance					13,280
	Budgeted income statement
	sales					255,000
	cost of goods sold:
	beginning inventory				37,500
	purchases				189,000
	goods available for sale				226,500
	ending invnetory				77,500
	cost of goods sold:					149,000
	Gross margin					106,000
	Selling and administrative expesne					93,600
	Depreciation expense					6,250
	net operating income					6,150
	interest expesne					370
	net income					5,780
	(you may show selling and adminitrative expense and dep expense together)
	Budgeted balance sheet
	Assets
	Cash					13,280
	Account receivable					89250
	inventory					77,500
	buildings & equipment,net of depreciaiton					240350
	(238000+8600-6250)
	total Assets					420,380
	Laibilities & stockholder's Equity
	Accounts payable					113400
	note payable					29,500
	common stock					180,000
	Retained earnings		(91700+5780)			97,480
	total liabilities & stockholders equity					420380