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	$	18,000
Accounts receivable		76,000
Inventory		32,500
Buildings and equipment, net of depreciation		243,000
Total assets	$	369,500
Liabilities and Stockholders’ Equity
Accounts payable	$	80,250
Note payable		13,200
Common stock		180,000
Retained earnings		96,050
Total liabilities and stockholders’ equity	$	369,500

  

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

  

a.	Sales are budgeted at $238,000 for May. Of these sales, $71,400 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 $124,000 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 $24,000.
d.	Selling and administrative expenses for May are budgeted at $86,100, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,450 for the month.
e.	The note payable on the April 30 balance sheet will be paid during May, with $400 in interest. (All of the interest relates to May.)
f.	New refrigerating equipment costing $15,100 will be purchased for cash during May.
g.	During May, the company will borrow $23,800 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-a.	Prepare a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases..

  

1-b.	Prepare a cash budget for May. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

  

2.	Prepare a budgeted income statement for May using the absorption costing income statement format

  

3.	Prepare a budgeted balance sheet as of May 31.

Answer 1

Solutions:

Minden Company
Schedule of Expected Cash collection
Cash Sales of May	71400
Collection of Accounts Receivable:
April 30 Balance	76000
May Credit sales [(238000-71400)*1/2]	83300
Total Cash collection	230700
Minden Company
Schedule of Expected Cash disbursement
April 30 Accounts payable balance	80250
May Purchases (124000*40%)	49600
Total Cash disbursement	129850
Minden Company
Cash Budget
Beginning Cash Balance	18000
Add: Collection from customers	230700
Total cash available	248700
Less: Cash Disbursement:
Purchase of Inventory	129850
Selling and administrative expenses	86100
Purchases of Equipment	15100
Total Cash disbursement	231050
Excess of cash available over disbursement	17650
Financing:
Borrowing-Note	23800
Repayments-Note	-13200
Interest	-400
Total Financing	10200
Ending cash Balance	27850
Minden Company
Budgeted Income Statement
For the month of May
Sales	238000
Less: Cost of goods sold (32500+124000-24000)	132500
Gross Margin	105500
Less: Selling and administrative expenses (86100+4450)	90550
Net Operating income	14950
Less: Interest expense	400
Net Income	14550
Minden Company
Budgeted Balance Sheet
May-31
Assets
Cash	27850
Accounts receivable	83300
Inventory	24000
Building and Equipment, net of Depreciation (243000-4450+15100)	253650
Total Assets	388800
Liabilities and Stockholders' Equity
Accounts Payable (124000*60%)	74400
Notes payable	23800
Common stock	180000
Retained earnings (96050+14550)	110600
Total Liabilities and Stockholders' Equity	388800