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	$	11,500
Accounts receivable		64,750
Inventory		47,000
Buildings and equipment, net of depreciation		220,000
Total assets	$	343,250
Liabilities and Stockholders’ Equity
Accounts payable	$	70,750
Note payable		19,900
Common stock		180,000
Retained earnings		72,600
Total liabilities and stockholders’ equity	$	343,250

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

Sales are budgeted at $290,000 for May. Of these sales, $87,000 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.

Purchases of inventory are expected to total $210,000 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 $79,500.

Selling and administrative expenses for May are budgeted at $96,300, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,800 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $450 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $7,600 will be purchased for cash during May.

During May, the company will borrow $23,700 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

1-a)	Schedule of Expected cash collection
	Cash sales-May					87,000
	Collections on account receivable
	April 30 balance					64,750
	May sales		(290000-87000)*50%			101500
	total cash recepits					253,250
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					70,750
	May purchases		(210000*40%)			84000
	total cash payments					154,750
1-b)	Cash Budget
	Beginning cash balance					11,500
	Add Collections from customers					253,250
	total cash available					264,750
	less Cash disbursements
	purchase of inventoru					154,750
	selling and administrative expense					96,300
	purchase of Equipment					7,600
	total cash disbursements					258,650
	Excess of cash available over disbursements					6,100
	financing:
	borrowing -note					23,700
	Repayments-note					-19,900
	interest					-450
	total financing					3,350
	Ending cash balance					9,450
	Budgeted income statement
	sales					290,000
	cost of goods sold:
	beginning inventory				47,000
	purchases				210,000
	goods available for sale				257,000
	ending invnetory				79,500
	cost of goods sold:					177,500
	Gross margin					112,500
	Selling and administrative expesne					96,300
	Depreciation expense					5,800
	net operating income					10,400
	interest expesne					450
	net income					9,950
	Budgeted balance sheet
	Assets
	Cash					9,450
	Account receivable					101500
	inventory					79,500
	buildings & equipment,net of depreciaiton					221800
	(220000+7600-5800)
	total Assets					412,250
	Laibilities & stockholder's Equity
	Accounts payable					126000
	note payable					23,700
	common stock					180,000
	Retained earnings		(72600+9950)			82,550
	total liabilities & stockholders equity					412250