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	$	14,600
Accounts receivable		55,000
Inventory		43,500
Buildings and equipment, net of depreciation		223,000
Total assets	$	336,100
Liabilities and Stockholders’ Equity
Accounts payable	$	74,500
Note payable		15,000
Common stock		180,000
Retained earnings		66,600
Total liabilities and stockholders’ equity	$	336,100

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

Sales are budgeted at $244,000 for May. Of these sales, $73,200 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 $130,000 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 $40,500.

Selling and administrative expenses for May are budgeted at $84,300, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,950 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $430 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $7,800 will be purchased for cash during May.

During May, the company will borrow $20,700 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.

Req 1 and 2

1. Calculate the expected cash collections for May.

2. Calculate the expected cash disbursements for merchandise purchases for May.

	Total cash collections Total cash disbursements

Req 3

Prepare a cash budget for May. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

	Minden Company Cash Budget For the Month of May Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Purchase of inventory Selling and administrative expenses Purchases of equipment Total cash disbursements Excess of cash available over disbursements Financing: Borrowing—note Repayments—note Interest Total financing Ending cash balance

Answer 1

Ans-1- Preparing a schedule of expected cash collections from sales

Minden Company

Schedule of Expected Cash Collections from sales

Particulars	Amount
Cash sales of May	$73,200
Collections of accounts receivables of April	$55,000
Cash from May's credit sales ($244,000-$73,200=$170,800*50%)	$85,400
Total cash receipts	$213,600

Ans-2- Preparing a schedule of expected cash disbursements for merchandise purchases:-

Minden Company

Schedule of Expected Cash disbursements for merchandise purchases

Particulars	Amount
Payment of outstanding balance as on April 30	$74,500
Payment of May's credit purchase ($130,000*40%)	$52,000
Total Cash disbursements	$126,500

Thus/ the expected cash receipts from sales and cash disbursements for merchandise purchases are:

Total Cash Collections	$213,600
Total Cash Disbursements	$126,500

Ans-3-Preparing Cash Budget for the month of May as provided below:-

Minden Company

Cash Budget

For the month of May

Particulars	Amount
Beginning cash balance	$14,600
Add: Cash Collections	$213,600
Total Cash Available	$228,200
Less: Cash Disbursements:-
For Merchandise	$126,500
For Selling and administrative expenses	$84,300
For Equipment	$7,800
Total Cash Disbursements	$218,600
Excess (deficiency) of cash available over disbursements	$9,600
Financing:
Borrowings-note	$20,700
Repayments-note	-$15,000
Interest	-$430
Total financing	$5,270
Ending Cash Balance ($5,270+$9,600)	$14,870

Ans-4- Preparing a budgeted income statement of Minden Company:-

Minden Company

Budgeted Income Statement

For the Month Ended May 31

Budgeted Sales	$244,000
Less: Cost of goods sold(W.N.1)	$133,000
Gross Profit	$111,000
Less:
Selling and administrative expenses	$84,300
Depreciation	$3,950
Interest	$430
Net Income	$22,320

Working Note-1- Cost of goods sold:

Particulars	Amount
Opening balance of inventory	$43,500
Add: Budgeted purchases during the month	$130,000
Less: Budgeted Closing inventory	$40,500
Cost of goods sold	$133,000

Ans-5- Preparing a Budgeted Balance Sheet of Minden Company

Minden Company

Balance Sheet

As at May 31

Assets
Current Assets:
Cash	$14,870
Accounts Receivable ($244,000-$73,200)*50%	$85,400
Inventory	$40,500
Total Current Aseets	$140,770
Building and equipment,net ($223,000+$7,800-$3,950)	$226,850
Total Assets	$367,620
Liabilities and Stockholders' Equity
Stockholders' Equity:
Capital Stock	$180,000
Retained earnings ($66,600+$22,320)	$88,920
Total Stockholders' equity	$268,920
Accounts Payable ($130,000*60%)	$78,000
Notes Payable	$20,700
Total Liabilities and stockholders' equity	$367,620

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