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	$	10,000
Accounts receivable		62,750
Inventory		32,750
Buildings and equipment, net of depreciation		219,000
Total assets	$	324,500
Liabilities and Stockholders’ Equity
Accounts payable	$	69,000
Note payable		22,700
Common stock		180,000
Retained earnings		52,800
Total liabilities and stockholders’ equity	$	324,500

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

a. Sales are budgeted at $254,000 for May. Of these sales, $76,200 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 $137,000 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 $45,000.

d. Selling and administrative expenses for May are budgeted at $98,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,550 for the month.

e. The note payable on the April 30 balance sheet will be paid during May, with $350 in interest. (All of the interest relates to May.)

f. New refrigerating equipment costing $8,700 will be purchased for cash during May.

g. During May, the company will borrow $27,400 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:

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	Minden Company
	Schedule of Expected Cash Collections
	Cash sales - May	76200
	Collections on account receivable:
	April 30 balance	62750
	May sales [($254000-$76200)/2]	88900
	Total cash receipts	227850
2	Minden Company
	Schedule of Expected Cash Disbursements
	April 30 accounts payable balance	69000
	May purchases ($137000 x 40%)	54800
	Total cash payments	123800
3	Minden Company
	Cash Budget
	For the Month of May
	Beginning cash balance $	10000
	Add collections from customers	227850
	Total cash available	237850
	Less cash disbursements:
	Purchase of inventory	123800
	Selling and administrative expenses	98400
	Purchases of equipment	8700
	Total cash disbursements	230900
	Excess of cash available over disbursements	6950
	Financing:
	Borrowing-note	27400
	Repayments-note	-22700
	Interest	-350
	Total financing	4350
	Ending cash balance $	11300

4	Minden Company
	Budgeted Income Statement
	For the Month of May
	Sales revenue	254000
	Cost of goods sold	124750
	Gross profit	129250
	Selling and administrative expense	103950
	Operating income	25300
	Interest expense	350
	Net income $	24950

Working:
Beginning inventory balance	32750
Add purchases	137000
Cost of goods available	169750
Ending inventory balance	45000
Cost of goods sold	124750

5	Minden Company
	Budgeted Balance Sheet
	May 31
	Assets
	Cash	11300
	Accounts receivable	88900
	Inventory	45000
	Buildings and equipment, net of depreciation	222150
	($219000 + $8700 - $5550)
	Total assets $	367350
	Liabilities and Stockholders' Equity
	Accounts payable ($137000 x 60%)	82200
	Note payable	27400
	Common stock	180000
	Retained earnings ($52800 + $24950)	77750
	Total liabilities and stockholders' equity $	367350