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: 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. 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. The May 31 inventory balance is budgeted at $40,500. 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. 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.) New refrigerating equipment costing $7,800 will be purchased for cash during May. 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. 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

Balance Sheet April 30
Assets
Cash	14600
Accounts Receivable	55000
Inventory	43500
Total Current assets	113100
Buildings and Equipment, net of depreciation	223000
Total Assets	336100
Liabilities and Stockholders Equity
Current Liabilities
Accounts Payable	74500
Note Payable	15000
Total Current Liabilities	89500
Common stock	180000
Retained Earnings	66600
Total Liabilities and Stockholders Equity	336100
Expected Cash Collections
Sales	244000
Cash	73200
Credit Sales	170800
Collected Same Month	85400
Previous month AR	55000
Total Cash Collections	213600
Expected cash disbursements
Purchases	130000
40% - 130000*40%	52000
Previous month	74500
	126500
Cash Budget
		May
Beginning Cash Balance		14600
Add : Collections during the month		213600
Total Cash available		228200
Less :
Payment for Purchases		126500
Selling and Administrative expenses		84300
Note Payable		15000
Interest on note payable		430
Purchase of Equipment		7800
Note Payable Taken		$20,700
Cash Balance, Ending		$14,870
Income Statement for May
Sales Revenue		244000
Less : Cost of Goods Sold		133000
(43500+130000-40500)
Gross Profit		111000
Less : Expenses
Selling and Administrative expenses		84300
Depreciation		3950
Interest		430
Net Income		22320
Balance Sheet as on 31st May
Assets
Cash	14870
Accounts Receivable	85400
Inventory	40500
Total Current assets	140770
Buildings and Equipment, net of depreciation	226850
Total Assets	367620
Liabilities and Stockholders Equity
Current Liabilities
Accounts Payable	78000
Note Payable	20700
Total Current Liabilities	98700
Common stock	180000
Retained Earnings	88920
Total Liabilities and Stockholders Equity	367620