Question

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet on April 30 is as follows:

MINDEN COMPANY Balance Sheet April 30
Assets
Cash	$	16,600
Accounts receivable, customers		63,500
Inventory		35,700
Buildings and equipment, net of depreciation		245,000
Total assets	$	360,800
Liabilities and Shareholders’ Equity
Accounts payable, suppliers	$	74,400
Note payable		18,300
Capital shares, no par		218,000
Retained earnings		50,100
Total liabilities and shareholders’ equity	$	360,800

The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as follows:

a.	Sales are budgeted at $580,000 for May. Of these sales, $174,000 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 are collected in the following month. All of the April 30 receivables will be collected in May.
b.	Purchases of inventory are expected to total $348,000 during May. These purchases will all be on account. 30% 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 $116,000.
d.	Operating expenses for May are budgeted at $208,800, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,800 for the month.
e.	The note payable on the April 30 balance sheet will be paid during May, with $130 in interest. (All of the interest relates to May.)
f.	New refrigerating equipment costing $10,300 will be purchased for cash during May.
g.	During May, the company will borrow $58,000 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.	Prepare a cash budget for May. (Any "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 budget for the month of may:

Particulars	amount $
Opening cash balance	16600
Add:
Cash sales	174000
receivables to be collected
may month credit sales to be collected in May	203000(refer working note)
April month credit sales to be collected in May	63500
Cash to be borrowed from bank during may	58000
Less:
Payments to be made for purchases:
Payment to be made for may month purchase	-104400
Payment to be made for April month purchase	-74400
Operating expense to be paid in cash	-208800
Note payable	-18300
Interest on note payable	-130
Refrigerating equipment to be purchased in cash	-10300
Budgeted closing cash balance as on 31st may	98770

Working note:

May month Credit sales  to be collected in may = ($580000-$174000)/2 = 203000

Budgeted income statement for the month of may:

Particulars	amount $
Sales	580000
Add
Budgeted Closing inventory	116000
Less
Opening inventory	-35700
Purchases	-348000
Operating expense	- 208800
depreciation	-5800
interest on note payable	-130
Budgeted Profit	97570

Budgeted balance sheet as on may 31st:

Assets	$ amount
Cash	98770
Accounts receivables , customers	203000
inventory	116000
Buildings and equipment net of depreciation	249500
Total assets	667270
Accounts payable	243600
Note payable	58000
capital shares no par	218000
Retained earnings	147670
Total liabilities and shareholder equity	667270

Working note:

Buildings and equipment

Opening balance =    245000

Add: Refrigerating equipment purchased = 10300

Less: Depreciation = -5800

   249500

Accounts Receivables

Opening balance = 63500

Add: credit sales = 406000

Less: Payment to be received = 266500

203000

Accounts Payables

Opening balance = 74400

Add: credit purchases    = 348000   

Less: Payment to be made   = 178800

243600

Retained Earnings

Opening Balance = 50100

May month budgeted profit = 97570

147670