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	$	9,400
Accounts receivable		78,500
Inventory		44,000
Buildings and equipment, net of depreciation		221,000
Total assets	$	352,900
Liabilities and Stockholders’ Equity
Accounts payable	$	72,000
Note payable		19,700
Common stock		180,000
Retained earnings		81,200
Total liabilities and stockholders’ equity	$	352,900

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

Sales are budgeted at $256,000 for May. Of these sales, $76,800 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.

Purchases of inventory are expected to total $188,000 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.

The May 31 inventory balance is budgeted at $83,000.

Selling and administrative expenses for May are budgeted at $91,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,000 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $435 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $7,000 will be purchased for cash during May.

During May, the company will borrow $23,100 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 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.
Sales Budget
	May
Sales	256,000.00
Cash Sales	76,800.00
Credit Sales	179,200.00
Budgeted Cash Collections
	May
Cash Sales	76,800.00
Collection from Accounts Receivables
Accounts Receivables - April	78,500.00
MAy Sales - $179,200 X 50%	89,600.00
Total cash Collections	244,900.00
Answer 2.
Schedule of Cash payments to Suppliers
	May
Cash Payment
Accounts Payable - April	72,000.00
May Purchases - $188,000 X 40%	75,200.00
Total Cash Payment to Suppliers	147,200.00
Answer 3.
Cash budget
	Oct
Opening cash Balance	9,400.00
Add: receipts
Collection from Customers	244,900.00
Note Payable Issued	23,100.00
Total Cash available	277,400.00
Less: Disbursements
Cash Disbursement - Accounts Payable	147,200.00
Selling & Admn. Exp. - $91,500	91,500.00
Note Payable Paid	19,700.00
Interest on Notes Payable	435.00
Refrigerating Equipment Purchased	7,000.00
Total Disbursement	265,835.00
Cash Balance Closing	11,565.00
Answer 4.
Income Statement
For the Month Ending May 31
Sales		256,000.00
Cost of Goods Sold
Beginning Inventory	44,000.00
Add: Purchases	188,000.00
Goods Available for Sale	232,000.00
Less: Ending Inventory	83,000.00	149,000.00
Gross Margin		107,000.00
Less: Selling & Admn. Exp. ($91,500 + $4,000)		95,500.00
Net Operating Income		11,500.00
Less: Interest Expense		435.00
Net Income		11,065.00
Answer 5.
Balance Sheet
As on Oct 31
Assets
Current Assets
Cash	11,565.00
Accounts receivables	89,600.00
Inventory	83,000.00	184,165.00
Fixed Assets
Building & Equipment	221,000.00
Add: Purchase Refrigerating Equip.	7,000.00
Less: Depreciation	(4,000.00)	224,000.00
Total Assets		408,165.00
Liabilities & Stockholders' Equity
Liabilities
Current Liabilities
Accounts Payable	112,800.00
Note Payable	23,100.00	135,900.00
Long Term Liabilities		-
Total liabilities		135,900.00
Shareholders's Equity
Common Stock	180,000.00
Retained Earnings	92,265.00
Total Stockholders equity		272,265.00
Total liabilities & Stockholders' Equity		408,165.00
Schedule of Retained Earnings
As on May 31
Opening Balance		81,200.00
Add: net income		11,065.00
Closing Balance		92,265.00