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	$	9,100
Accounts receivable		77,250
Inventory		40,000
Buildings and equipment, net of depreciation		239,000
Total assets	$	365,350
Liabilities and Stockholders’ Equity
Accounts payable	$	79,750
Note payable		12,300
Common stock		180,000
Retained earnings		93,300
Total liabilities and stockholders’ equity	$	365,350

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

1. Sales are budgeted at $266,000 for May. Of these sales, $79,800 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 $170,000 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 $44,500.

4. Selling and administrative expenses for May are budgeted at $81,900, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,450 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $140 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $9,600 will be purchased for cash during May.

7. During May, the company will borrow $23,400 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

ANSWER

Cash collection
			may
Cash sales			79,800
Credit sales(266000 - 79800)*50%			93100
Account receivable			77,250
total cash collection			2,50,150
( account receivable will be $93,100)
	Cash paid for purchases
170,000 *40%			68000
Accounts payable			79750
Cash disbursed			147750
( Accounts payable 170000*60% = 102000)
Cash Budget'
opening cash balance			9,100
Add Cash collection			2,50,150
total cash received			2,59,250
cash disbursement
purchases			1,47,750
Selling and administrative expense			81,900
Equipment purchase			9,600
total disbursement			2,39,250
Excess			20,000
Financing
borrowing			23,400
Repayment			-12,300
interest			-140
total.			10,960
cash balance			30960
Budgeted income				cost of goods sold
Sales			2,66,000	opening inventory	40,000
Cost of goods sold			1,65,500	Add purchases	1,70,000
gross profit			1,00,500	less ending inventory	-44,500
selling and administrative expense		81900		cost of goods sold	1,65,500
Depreciation expense		6,450
total operating expense			88350
income before tax			12150
less interest			-140
net operating income			12010
Balance sheet
cash			30,960	building
Account receivable			93,100	opening	239000
inventory			44,500	add addition	9600
building & equipment net			2,42,150	less depreciation	-6450
total Assets			4,10,710	closing balance	242150
Liabilities & Stockholders Equity				Retained earnings
Accounts payable			1,02,000	opening	93300
Note payable			23,400	Add net income	12010
common stock			1,80,000	closing RE	105310
Retained earnings			1,05,310
Total liabilities & Equity			4,10,710

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