Question

Minden Company is a wholesale distributor of premium European Chocolates. The Company’s balance sheet as of April 30th is given below:

Assets		Liabilities and SE
Cash	9,000	Accounts payable	63,000
Accounts Receivable	54,000	Note Payable	14,500
Inventory	30,000	Common stock	180,000
Building and Equip, net of deprec	207,000	Retained Earnings	42,500
Total Assets	300,000	Total Liabilities and SE	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 $200,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a months credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of 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. 40% of all purchases are paid for in the month of purchase; the remainder are paid 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 $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 30th balance sheet will be paid during Mat, 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. Using Schedule 9 as your guide, prepare a budgeted income statement for May

5. Prepare a budgeted balance sheet as of May 31

Answer 1

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