Question

Problem 8-19 Cash Budget; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]

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	$	12,000
Accounts receivable		77,500
Inventory		42,000
Buildings and equipment, net of depreciation		225,000
Total assets	$	356,500
Liabilities and Stockholders’ Equity
Accounts payable	$	78,250
Note payable		19,300
Common stock		180,000
Retained earnings		78,950
Total liabilities and stockholders’ equity	$	356,500

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

1. Sales are budgeted at $231,000 for May. Of these sales, $69,300 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 $139,000 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 $55,000.

4. Selling and administrative expenses for May are budgeted at $83,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,200 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $155 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $12,500 will be purchased for cash during May.

7. During May, the company will borrow $24,000 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 from customers 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 1:
Minden Company
Schedule of Expected Cash collection
Cash Sales of May	69300
Collection of Accounts Receivable:
April 30 Balance	77500
May Credit sales [(231000-69300)*1/2]	80850
Total Cash collection	227650
Solution 2:
Minden Company
Schedule of Expected Cash disbursement
April 30 Accounts payable balance	78250
May Purchases (139000*40%)	55600
Total Cash disbursement	133850
Solution 3:
Minden Company
Cash Budget
Beginning Cash Balance	12000
Add: Collection from customers	227650
Total cash available	239650
Less: Cash Disbursement:
Purchase of Inventory	133850
Selling and administrative expenses	83400
Purchases of Equipment	12500
Total Cash disbursement	229750
Excess of cash available over disbursement	9900
Financing:
Borrowing-Note	24000
Repayments-Note	-19300
Interest	-155
Total Financing	4545
Ending cash Balance	14445
Solution 4:
Minden Company
Budgeted Income Statement
For the month of May
Sales	231000
Less: Cost of goods sold (42000+139000-55000)	122500
Gross Margin	108500
Less: Selling and administrative expenses (83400+6200)	89600
Net Operating income	18900
Less: Interest expense	155
Net Income	18745
Solution 5:
Minden Company
Budgeted Balance Sheet
May-31
Assets
Cash	14445
Accounts receivable	80850
Inventory	58500
Building and Equipment, net of Depreciation (225000+12500-6200)	231300
Total Assets	385095
Liabilities and Stockholders' Equity
Accounts Payable (139000*60%)	83400
Notes payable	24000
Common stock	180000
Retained earnings (78950+18745)	97695
Total Liabilities and Stockholders' Equity	385095