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	$	16,500
Accounts receivable		67,000
Inventory		32,000
Buildings and equipment, net of depreciation		249,000
Total assets	$	364,500
Liabilities and Stockholders’ Equity
Accounts payable	$	68,750
Note payable		20,500
Common stock		180,000
Retained earnings		95,250
Total liabilities and stockholders’ equity	$	364,500

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

1. Sales are budgeted at $241,000 for May. Of these sales, $72,300 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 $191,000 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 $86,000.

4. Selling and administrative expenses for May are budgeted at $76,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,300 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $170 in interest. (All of the interest relates to May.)

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

7. During May, the company will borrow $27,000 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 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

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