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	$	9,200
Accounts receivable		76,250
Inventory		49,750
Buildings and equipment, net of depreciation		228,000
Total assets	$	363,200
Liabilities and Stockholders’ Equity
Accounts payable	$	63,750
Note payable		23,900
Common stock		180,000
Retained earnings		95,550
Total liabilities and stockholders’ equity	$	363,200

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

1. Sales are budgeted at $227,000 for May. Of these sales, $68,100 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 $159,000 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 $87,500.

4. Selling and administrative expenses for May are budgeted at $79,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,000 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $105 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $11,800 will be purchased for cash during May.

7. During May, the company will borrow $25,100 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

1. expected cash collections for May

Cash sales =   $68,100

Collection on Accounts receivables:

April 30, accounts receivable = 76,250

May's credit sales[50%*(227,000 - 68,100)] =    79450

   Total cash collection = $223800

2.     expected cash disbursements for merchandise purchases for May

April 30 accounts payable = 63,750

May credit purhcase [40% *$159,000 ] = 63600

   Total cash disbursement = $127350

3. cash budget for May

Beginning Balance	9,200
Add: collection form customers	223800
Total cash available	233000
less: cash disbursement :
Purchase of inventory	127350
Selling and administrative expense	79,500
Purchase of Equipment	11,800
Total cash disbursement	218650
Excess of cash available over disbursements	14350
Financing:
Borrowing- note	25,100
Repayment- note	(23,900)
Interest	(105)
Total Financing	1095
Ending cash balance	$15445

4. budgeted income statement for May

Sales	$227,000
less : cost of goods sold [$49,750 opening inventory +$159,000 purchase - $87,500 opening inventory]	121250
Gross profit	105750
less: Depreciation	(6,000)
Selling and administrative expenses	(79,500)
Interest	(105 )
Net income	$20145

5. budgeted balance sheet as of May 31

Minden Company Balance Sheet April 30
Assets
Cash	$	15445
Accounts receivable		79450
Inventory		87,500
Buildings and equipment, net of depreciation [228,000 - 6000 depreciation + 11,800 New equipment ]		233800
Total assets	$	416195
Liabilities and Stockholders’ Equity
Accounts payable	$	95400
Note payable		25,100
Common stock		180,000
Retained earnings [95,550 + 20145 net income]		115695
Total liabilities and stockholders’ equity	$	416195