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   $9,000

Accounts receivable   54,000

Inventory 30,000

Buildings and equipment,

net of depreciation 207,000

Total assets   $300,000

Liabilities and Stockholders’ Equity

Accounts payable   $63,000

Note payable   14,500

Common stock   180,000

Retained earnings   42,500

Total liabilities and

stockholders’ equity $300,000

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

Sales are budgeted at $200,000 for May. Of these sales, $60,000 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 $120,000 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 $40,000.

Selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $6,500 will be purchased for cash during May.

During May, the company will borrow $20,000 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. 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

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Minden Company
Ans 1- Collection Budget	May	Note
Budgeted Sales Revenue	200,000.00	A
Cash sales	60,000.00	B
Credit sales	140,000.00	C=A-B
50% of credit sale collected in the same month	70,000.00	D=50% of C
Collection of accounts receivable of April	54,000.00	E
Collection of accounts receivable	124,000.00	F=D+E
Ans 2- Inventory Payment Budget	May
Budget Purchases in May	120,000.00	G
Paid in current month 40%	48,000.00	H=G*40%
Payment of accounts payable of April	63,000.00	I
Total Scheduled payments	111,000.00	J=H+I
Ans 3- Cash budget	May
Estimated Cash Receipts from
Cash sales	60,000.00	B
Collection of accounts receivable	124,000.00	See F
New note payable taken	20,000.00
Total Cash Receipts	204,000.00	K
Estimated cash payments for
Inventory Payment	111,000.00	See J
Selling and administrative expenses	72,000.00
Note payable	14,500.00
Interest on note payable	100.00
Equipment purchased	6,500.00
Total cash payments	204,100.00	L
Cash Increase (Decrease)	(100.00)	M=K-L
Cash balance at the beginning of month	9,000.00	N
Cash balance at the end of month	8,900.00	O=M+N
Workings for Income statement	Amount $
Beginning Inventory	30,000.00
Add: Purchases	120,000.00
Less: Ending Inventory	40,000.00	Q
Cost of goods sold	110,000.00	P
Ans 4- Income statement	May
Sales Revenue	200,000.00
Less: Cost of Goods Sold	110,000.00	See P
Gross profit	90,000.00
Less: Operating expenses
Selling and administrative expenses	72,000.00
Depreciation expense	2,000.00
Total Operating expenses	74,000.00
Operating income	16,000.00
Less: Interest expense	100.00
Net Income	15,900.00
Statement of Retained Earnings	Amount $
Opening Balance- retained Earnings	42,500.00
Add: Net Income	15,900.00
Subtotal	58,400.00
Less: Dividends	-
Closing Balance	58,400.00	R
Workings for Balance Sheet	Amount $
40% of May credit sales	70,000.00
Accounts receivable	70,000.00	S
60% of May purchases	72,000.00
Accounts payable	72,000.00	T
Answer 5- Balance Sheet
Current Assets	Amount $
Cash	8,900.00	See cash budget
Accounts Receivable	70,000.00	See S
Inventory	40,000.00
Buildings & Equipment	211,500.00	This is $ 207,000+ 6500 less 2,000 depreciation.
Total Assets	330,400.00
Liabilities & Shareholder's Equity
Liabilities	Amount $
Current Liabilities
Accounts Payable	72,000.00	See T
Note payable	20,000.00
Total Current Liabilities	92,000.00
Total Liabilities	92,000.00
Shareholder's Equity
Common stock	180,000.00
Retained Earnings	58,400.00	See R
Total Shareholder's Equity	238,400.00
Total Liabilities & Shareholder's Equity	330,400.00