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	$	18,700
Accounts receivable		70,250
Inventory		41,250
Buildings and equipment, net of depreciation		230,000
Total assets	$	360,200
Liabilities and Stockholders’ Equity
Accounts payable	$	72,250
Note payable		13,700
Common stock		180,000
Retained earnings		94,250
Total liabilities and stockholders’ equity	$	360,200

  

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

  

a.	Sales are budgeted at $214,000 for May. Of these sales, $64,200 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 $122,000 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 $47,500.
d.	Selling and administrative expenses for May are budgeted at $85,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,050 for the month.
e.	The note payable on the April 30 balance sheet will be paid during May, with $390 in interest. (All of the interest relates to May.)
f.	New refrigerating equipment costing $16,300 will be purchased for cash during May.
g.	During May, the company will borrow $24,500 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.

  

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

Answer 1

Cash collection budget
Particulars	Calculation	Amount
Accounts receivable		70250
May sales
Cash sales		64200
Credit sales	(214000-64200)/2	74900
Total cash collection in the month of may		209350
Cash Disbursement Budget
Particulars	Calculation	Amount
Accounts payable		72250
May purchases
Credit purchases	(122000*40%)	48800
Total cash disbursement		121050
Cash Budget
Particulars	Calculation	Amount
Cash balance		18700
Cash Collection during may		209350
Total cash available		228050
Less: cash disbursements
For purchases		121050
Selling and administrative expenses		85500
New refrigerating equipment		16300
Total cash disbursement		222850
Excess/(deficit) of cash		5200
External financing
Borrowing		24500
Repayment		-13700
Interest		-390
Total External financing		10410
Cash Balance Ending		15610
Income Statement
Particulars	Calculation	Amount
Sales		214000
Less: Cost of goods sold	(41250+122000-47500)	115750
Gross margin		98250
Less: Expenses
Selling and administration expenses		85500
Depreciation		2050
Interest		390
Total Expenses		87940
Net income		10310
Balance Sheet
Assets
Cash		15610
Accounts receivable		74900
Inventory		47500
Buildings and Equipment, net of depreciation	230000+16300-2050	244250
Total Assets		382260
Liabilities and Shareholders equity
Accounts payable	122000*60%	73200
Notes payable		24500
Common stock		180000
Retained earnings	(94250+10310)	104560
Total liabilities and Shareholders equity		382260