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	$	18,500
Accounts receivable		58,500
Inventory		40,750
Buildings and equipment, net of depreciation		202,000
Total assets	$	319,750
Liabilities and Stockholders’ Equity
Accounts payable	$	67,750
Note payable		15,800
Common stock		180,000
Retained earnings		56,200
Total liabilities and stockholders’ equity	$	319,750

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

1. Sales are budgeted at $263,000 for May. Of these sales, $78,900 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 $193,000 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 $63,000.

4. Selling and administrative expenses for May are budgeted at $73,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,650 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $210 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $11,900 will be purchased for cash during May.

7. During May, the company will borrow $27,200 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

Answer:

(1) Calculation of the expected cash collections from customers for May :

Particulars	Amount
Cash sales - May	78,900
Collection on account receivable
April 30 balance	58,500
May Sales	92,050
Total Cash Receipts	229,450

(2)  Calculation of the expected cash disbursements for merchandise purchases for May :

Particulars	Amount
Payment of April 30 balance	67,750
Payment of May purchases	77,200
Total Cash Payments	144,950

Payment of May purchases = $193,000 x 40% = $77,200

(3) Preparation of cash budget for May :

Particulars	Amount
Beginning balance of Cash	18,500
Add : Collection from Customers	229,450
Total Cash available	247,950
Less : Cash disbursement :
Purchase of inventory	144,950
Selling and Administrative Expenses	73,200
Purchase of Equipment	11,900
Total Cash disbursements	230,050
Excess of Cash available over disbursement	17,900
Financing :
Borrowing - Note	27,200
Repayment - Note	(15,800)
Interest	(210)
Total Financing	11,190
Ending Cash Balance	6,710

(4) Preparation of budgeted income statement for May :

Particulars	Amount	Amount
Sales		263,000
Cost of Goods Sold :
Purchases	193,000
Beginning Inventory	40,750
Goods available for sale	233,750
Ending Inventory	63,000
Total Cost of Goods sold	170,750	170,750
Gross Margin		92,250
Selling and administrative Expenses		77,850
Net Operating income		14,400
Interest Expenses		(210)
Net Income		14,190

(5) Preparation of budgeted balance sheet as of May 31 :

Particulars	Amount
Assets
Cash	6,710
Accounts Receivable	92,050
Inventory	63,000
Building and Equipment, net of depreciation	209,250
Surplus	22,380
Total Assets	393,390
Liabilities and Stockholder's Equity
Accounts Payables	115,800
Notes Payable	27,200
Common Stock	180,000
Retained Earnings	70,390
Total Liabilities	393,390

Accounts Receivable = $184,000 x 50% = 92,050

Building and Equipment, net of depreciation = $202,000 + 11,900 -4,650 = $209,250

Account Payables = $193,000 x 60% = $115,800

Retained Earnings = $56,200 + $14,190 = $70,390