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 $ 11,400 Accounts receivable 75,000 Inventory 41,000 Buildings and equipment, net of depreciation 224,000 Total assets $ 351,400 Liabilities and Stockholders’ Equity Accounts payable $ 70,000 Note payable 15,500 Common stock 180,000 Retained earnings 85,900 Total liabilities and stockholders’ equity $ 351,400 The company is in the process of preparing a budget for May and has assembled the following data: Sales are budgeted at $220,000 for May. Of these sales, $66,000 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 $128,000 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 $56,000. Selling and administrative expenses for May are budgeted at $86,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,750 for the month. The note payable on the April 30 balance sheet will be paid during May, with $565 in interest. (All of the interest relates to May.) New refrigerating equipment costing $6,700 will be purchased for cash during May. During May, the company will borrow $25,300 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

1-a)	Schedule of Expected cash collection
	Cash sales-May					66,000
	Collections on account receivable
	April 30 balance					75,000
	May sales		(220000-66000)*50%			77000
	total cash recepits					218,000
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					70,000
	May purchases		(128000*40%)			51200
	total cash payments					121,200
1-b)	Cash Budget
	Beginning cash balance					11,400
	Add Collections from customers					218,000
	total cash available					229,400
	less Cash disbursements
	purchase of inventoru					121,200
	selling and administrative expense					86,000
	purchase of Equipment					6,700
	total cash disbursements					213,900
	Excess of cash available over disbursements					15,500
	financing:
	borrowing -note					25,300
	Repayments-note					-15,500
	interest					-565
	total financing					9,235
	Ending cash balance					24,735
	Budgeted income statement
	sales					220,000
	cost of goods sold:
	beginning inventory				41,000
	purchases				128,000
	goods available for sale				169,000
	ending invnetory				56,000
	cost of goods sold:					113,000
	Gross margin					107,000
	Selling and administrative expesne					86,000
	Depreciation expense					6,750
	net operating income					14,250
	interest expesne					565
	net income					13,685
	Budgeted balance sheet
	Assets
	Cash					24,735
	Account receivable					77000
	inventory					56,000
	buildings & equipment,net of depreciaiton					223950
	(224000+6700-6750)
	total Assets					381,685
	Laibilities & stockholder's Equity
	Accounts payable					76800
	note payable					25,300
	common stock					180,000
	Retained earnings		(85900+13685)			99,585
	total liabilities & stockholders equity					381685