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	$	14,600
Accounts receivable		55,000
Inventory		43,500
Buildings and equipment, net of depreciation		223,000
Total assets	$	336,100
Liabilities and Stockholders’ Equity
Accounts payable	$	74,500
Note payable		15,000
Common stock		180,000
Retained earnings		66,600
Total liabilities and stockholders’ equity	$	336,100

  

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

  

a.	Sales are budgeted at $244,000 for May. Of these sales, $73,200 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.
b.	Purchases of inventory are expected to total $130,000 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.
c.	The May 31 inventory balance is budgeted at $40,500.
d.	Selling and administrative expenses for May are budgeted at $84,300, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,950 for the month.
e.	The note payable on the April 30 balance sheet will be paid during May, with $430 in interest. (All of the interest relates to May.)
f.	New refrigerating equipment costing $7,800 will be purchased for cash during May.
g.	During May, the company will borrow $20,700 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-a.	Prepare a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases..

  

1-b.	Prepare a cash budget for May. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

  

2.	Prepare a budgeted income statement for May using the absorption costing income statement format

  

3.	Prepare a budgeted balance sheet as of May 31.

References

Answer 1

a
Schedule of expected cash collections
Cash sales May	73200
Collections on accounts receivable
April 30 balance	55000
May sales (244000-73200)*50%	85400
Total Cash Receipts	213600
Schedule of expected cash disbursments
April 30 Accounts payable balance	74500
May purchases 130,000*40%	52000
Total Cash payaments	126500
Minden compnay Cash Budget For the month of May
Beginning Cash balance	14600
Add: Collection from cutomers	213600
Total Cash Available	228200
Less Cash Disbursments
Purchase of inventory	126500
Selling and administrative expense	84,300
Purcase of Equipment	7800
Total Cash Disbursments	218600
Excess of cash available over disbursments	9600
Financing
Borrowing Note	20700
Repaymnet note	-15000
Interest	-430
Total Financing	5270
Ending Cash Balance	14870
Minden Company Budgeted Income Statement For the month of May
Sales		244000
Cost of goods sold
Beginning Inventory	43500
Purchases	130000
Goods available for sale	173500
Ending Inventory	-40500
Cost of goods sold		133000
Gross Margin		111000
Selling and administrative expense 84,300+3950		88250
Net operating Income		22750
Interest income		-430
Net Income		22320

Minden Company Budgeted Balance Sheet May 31
Assets
Cash	14870
Accounts Receivable (244000-73200)*50%	85400
Inventory	40500
Building and Equipemnt, Net of depriciation 223000+7800-3950	226850
Total Assets	367620
Liabilities and Stockholder's Equity
Accoutns payable 130,000*60%	78000
Note Payable	20700
Common Stock	180000
Retained earnings 66600+22320	88920
Total Liability and stock holders Equity	367620