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 $ 18,700 Accounts receivable 70,250 Inventory 41,250 Buildings and equipment, net of depreciation 230,000 Total assets $ 360,200 Liabilities and Stockholders’ Equity Accounts payable $ 72,250 Note payable 13,700 Common stock 180,000 Retained earnings 94,250 Total liabilities and stockholders’ equity $ 360,200 The company is in the process of preparing a budget for May and has assembled the following data: Sales are budgeted at $214,000 for May. Of these sales, $64,200 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 $122,000 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 $47,500. Selling and administrative expenses for May are budgeted at $85,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,050 for the month. The note payable on the April 30 balance sheet will be paid during May, with $390 in interest. (All of the interest relates to May.) New refrigerating equipment costing $16,300 will be purchased for cash during May. During May, the company will borrow $24,500 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

SOLUTION

(A) Schedule of cash collections-

Particulars	Amount ($)
Cash sales - May	64,200
Collections on accounts receivables:
April 30 balance	70,250
May sales (214,000-64,200)*50%	74,900
Total cash receipts	209,350

(B) Schedule of cash disbursement-

Particulars	Amount ($)
April 30 accounts payable balance	72,250
May purchases (122,000*40%)	48,800
Total cash payments	121,050

(C) Cash budget

Particulars	Amount ($)
Beginning cash balance	18,700
Add: Collection form customers	209,350
Total cash available (A)	228,050
Less: Cash disbursements
Purchase of inventory	(121,050)
Selling and administrative expense	(85,500)
Purchase of equipment	(16,300)
Total cash disbursements (B)	222,850
Excess of cash available over disbursement (A-B)	5,200
Financing:
Borrowing -note	24,500
Repayment - note	(13,700)
Interest	(390)
Total financing	10,410
Ending cash balance	15,610

(D) Budgeted income statement-

Particulars	Amount ($)	Amount ($)
Sales		214,000
Cost of goods sold
Beginning inventory	41,250
Purchases	122,000
Goods available for sale	163,250
Ending inventrory	(47,500)
Cost of goods sold		115,750
Gross margin		98,250
Sellig and administrative expenses (85,500+2,050)		(87,550)
Net operating income		10,700
Interest income		(390)
Net income		10,310

(5) Budgeted balance sheet-

	Amount ($)
Assets-
Cash	15,610
Accounts receivable (214,000-64,200)*50%	74,900
Inventory	47,500
Building, Equipment, net of depreciation (230,000+16,300-2,050)	244,250
Total assets	382,260
Liabilities and stockholder's equity-
Accounts payable (122,000*60%)	73,200
Notes payable	24,500
Common stock	180,000
Retained earnings (94,250+10,310)	104,560
Total liabilities and stockholder's equity	382,260