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 $ 11,100 Accounts receivable 72,500 Inventory 37,500 Buildings and equipment, net of depreciation 238,000 Total assets $ 359,100 Liabilities and Stockholders’ Equity Accounts payable $ 68,000 Note payable 19,400 Common stock 180,000 Retained earnings 91,700 Total liabilities and stockholders’ equity $ 359,100

The company is in the process of preparing a budget for May and has assembled the following data: Sales are budgeted at $255,000 for May. Of these sales, $76,500 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 $189,000 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 $77,500. Selling and administrative expenses for May are budgeted at $93,600, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,250 for the month. The note payable on the April 30 balance sheet will be paid during May, with $370 in interest. (All of the interest relates to May.) New refrigerating equipment costing $8,600 will be purchased for cash during May. During May, the company will borrow $29,500 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

Solution

1. Schedule of expected cash collection from customer

Particulars	Amount
Cash sales in May	$76500
Collection of Account receivable
Balance as on April 30	$72500
Sales in may	$89250
Total cash receipts	$238250

Credit sales = $255000-$76500=178500

Collection = $178500*50%=89250

2 schedule of expected cash disbursements for merchandise purchases for May

Particulars	Amount
April 30 Account payable	$68000
May purchases	$75600
Total Cash payment	$143600

May purchases =$189000*40% =$75600

3. cash budget for May

Particulars	amount
Beginning Cash balance	$11100
Add collection from customers	$238250
Total cash available	$249350
Less cash disbursements
Purchase of inventory	$143600
Selling and administrative expenses	$93600
Purchase of equipment	$8600
Total cash disbursements	$245800
Excess of cash available	$3550
Financing
Borrowing note	$29500
Repayment note	($19400)
Interest	($370)
Total financing	$9730
Ending cash balance	$13280

4. budgeted income statement for May.

Particulars	Amount	Amount
Sales		$255000
Cost of goods sold
Beginning inventory	$37500
Add purchases	$189000
Cost of goods available for sale	$226500
Less ending inventory	$77500
Cost of goods sold		$149000
Gross margin		$106000
Selling and administrative expenses		$99850(93600+6250)
Net operating income		$6150
Iess interest		$370
Net income		$5780

5.

budgeted balance sheet as of May 31.

ASSETS	Amount
Cash	$13280
Account receivable	$89250
Inventory	$77500
Building and equipment,net of depreciation	$240350
Total assets	$420380
LIABILITIES AND STOCK HOLDER EQUITY
account payable	$113400
Notes payable	$29500
Common stock	$180000
Retained earnings	$97480
Total liabilities and stock holder's equity	$420380

Building and equipment , net off depreciation =238,000+8600 -6250=$240350

Account payable = 189000*60%(40% is paid) =$113400

Retained earnings =91,700+5780 =$97480