Question

Problem 7-17A Cash Budget; Income Statement; Balance Sheet [LO7-2, LO7-4, LO7-8, LO7-9, LO7-10] 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 $ 11,400 Accounts receivable 75,000 Inventory 41,000 Buildings and equipment, net of depreciation 224,000 Total assets $ 351,400 Liabilities and Stockholders’ Equity Accounts payable $ 70,000 Note payable 15,500 Common stock 180,000 Retained earnings 85,900 Total liabilities and stockholders’ equity $ 351,400 The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $220,000 for May. Of these sales, $66,000 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 $128,000 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 $56,000. d. Selling and administrative expenses for May are budgeted at $86,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,750 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $565 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $6,700 will be purchased for cash during May. g. During May, the company will borrow $25,300 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 using the absorption costing income statement format 3. Prepare a budgeted balance sheet as of May 31.

Answer 1

	1-a)	Schedule of Expected cash collection
		Cash sales-May					66,000
		Collections on account receivable
		April 30 balance					75,000
		May sales		(220000-66000)*50%			77000
		total cash recepits					218,000
		Schedule of Expected cash disbursements
		April 30 accounts payable balance					70,000
		May purchases		(128000*40%)			51200
		total cash payments					121,200
	1-b)	Cash Budget
		Beginning cash balance					11,400
		Add Collections from customers					218,000
		total cash available					229,400
		less Cash disbursements
		purchase of inventoru					121,200
		selling and administrative expense					86,000
		purchase of Equipment					6,700
		total cash disbursements					213,900
		Excess of cash available over disbursements					15,500
		financing:
		borrowing -note					25,300
		Repayments-note					-15,500
		interest					-565
		total financing					9,235
		Ending cash balance					24,735
		Budgeted income statement
		sales					220,000
		cost of goods sold:
		beginning inventory				41,000
		purchases				128,000
		goods available for sale				169,000
		ending invnetory				56,000
		cost of goods sold:					113,000
		Gross margin					107,000
		Selling and administrative expesne					86,000
		Depreciation expense					6,750
		net operating income					14,250
		interest expesne					565
		net income					13,685
		Budgeted balance sheet
		Assets
		Cash					24,735
		Account receivable					77000
		inventory					56,000
		buildings & equipment,net of depreciaiton					224050
		(224000+6700-6750)
		total Assets					381,785
		Laibilities & stockholder's Equity
		Accounts payable					76800
		note payable					25,300
		common stock					180,000
		Retained earnings		(85900+13685			99,585
		total liabilities & stockholders equity					381685