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	$	18,000
Accounts receivable		76,000
Inventory		32,500
Buildings and equipment, net of depreciation		243,000
Total assets	$	369,500
Liabilities and Stockholders’ Equity
Accounts payable	$	80,250
Note payable		13,200
Common stock		180,000
Retained earnings		96,050
Total liabilities and stockholders’ equity	$	369,500

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

Sales are budgeted at $238,000 for May. Of these sales, $71,400 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 $124,000 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 $24,000.

Selling and administrative expenses for May are budgeted at $86,100, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,450 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $400 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $15,100 will be purchased for cash during May.

During May, the company will borrow $23,800 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) Expected cash collections for May (Amounts in $)

Cash Sales	71,400
Cash collected from Accounts receivable:
April Accounts receivable	76,000
Credit sales of May [(238,000-71,400)*50%]	83,300
Total expected cash collections	230,700

2) Expected cash disbursements for purchases for May (Amounts in $)

April Accounts payable	80,250
Payment for May purchases (40%*$124,000)	49,600
Total expected cash disbursements for purchases	129,850

3)   Minden Company

Cash Budget

For the Month of May (Amounts in $)

Beginning cash balance	18,000
Add: Collections from customers	230,700
Total cash available (A)	248,700
Less: Cash disbursements
Purchase of inventory	129,850
Selling and administrative expenses	86,100
Purchase of equipment	15,100
Total cash disbursements (B)	231,050
Excess of cash available over disbursements (C = A - B)	17,650
Financing:
Borrowing-note	23,800
Repayments-note	(13,200)
Interest	(400)
Total financing (D)	10,200
Ending cash balance (C + D)	27,850

4) Budgeted Income Statement for May (Amounts in $)

Sales	238,000
Less: Cost of goods sold (Beg. Inventory+Purchases-Ending Inventory) (32,500+124,000-24,000)	(132,500)
Gross Profit (A)	105,500
Expenses:
Depreciation expense	4,450
Selling and administrative expense	86,100
Interest expense	400
Total expenses (B)	90,950
Net Income (to be credited to retained earnings) (A-B)	14,550

5) Budgeted Balance Sheet as of May 31 (Amounts in $)

Assets
Cash	27,850
Accounts receivable [(238,000-71,400)*50%]	83,300
Inventory	24,000
Building and equipment, net of depreciation (243,000+15,100 purchase-4,450 dep)	253,650
Total assets	388,800
Liabilities and stockholder's equity
Accounts payable (124,000*60%)	74,400
Note payable	23,800
Common stock	180,000
Retained earnings (96,050+14,550)	110,600
Total liabilities and stockholder's equity	388,800