Question

In: Accounting

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of...

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 $ 10,500
  Accounts receivable 57,000
  Inventory 42,500
  Buildings and equipment, net of depreciation

236,000

  Total assets $

346,000

Liabilities and Stockholders’ Equity
  Accounts payable $ 72,750
  Note payable 21,200
  Common stock 180,000
  Retained earnings

72,050

  Total liabilities and stockholders’ equity $

346,000

  

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

  

a.

Sales are budgeted at $296,000 for May. Of these sales, $88,800 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.

b.

Purchases of inventory are expected to total $192,000 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.

c. The May 31 inventory balance is budgeted at $51,500.
d.

Selling and administrative expenses for May are budgeted at $98,700, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,150 for the month.

e.

The note payable on the April 30 balance sheet will be paid during May, with $220 in interest. (All of the interest relates to May.)

f. New refrigerating equipment costing $6,800 will be purchased for cash during May.
g.

During May, the company will borrow $23,200 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-a.

Prepare a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases..

  

1-b.

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

  

2. Prepare a budgeted income statement for May using the absorption costing income statement format

  

3.

Prepare a budgeted balance sheet as of May 31.

Solutions

Expert Solution

1-a. Schedule for expected cash collection from sales
Budgeted sales $296,000
Cash sales $88,800
Credit sales $207,200
Collection from credit sales for May $103,600 (207200/2)
Collection from credit sales for April $57,000
Expected cash collection for May $249,400
Schedule for expected cash disbursements for merchandise purchases
Expected purchase of inventory $192,000
Cash paid for purchase (192000 x 40%) $76,800
Cash paid for accounts payable for April $72,750
Expected cash disbursement for merchandise purchases $149,550
1-b. Cash budget for May
Receipts
Budgeted sales $296,000
Cash sales $88,800
Credit sales $207,200
Collection from credit sales for May $103,600
Collection from credit sales for April $57,000
Expected cash collection for May $249,400
Payments
Expected purchase of inventory $192,000
Cash paid for purchase (192000 x 40%) $76,800
Cash paid for accounts payable for April $72,750
Expected cash disbursement for merchandise purchases $149,550
Selling and administrative expenses $98,700
Net cash availabe from operating activities $1,150
Repayment of note payable ($21,200)
Interest ($220)
Purchase of new refrigerating equipment ($6,800)
New note payable $23,200
Net cash available/(deficiency) ($3,870)
Beginning Cash Balance $10,500
Ending cash Balance $6,630
2. Income statement
for the month of May
Sales $296,000
Less: Cost of goods sold:
Opening inventory $42,500
Add: Purchase of inventory in current month $192,000
Cost of goods available for sale $234,500
Less: Closing inventory $51,500 $183,000
Gross Profit $113,000
Less: Operating expenses
Selling and administrative expenses $98,700
Depreciation $2,150
Total operating expenses $100,850
Operating income $12,150
Non-operating expenses:
Interest expenses $220
Net income $11,930
3. Budgeted Balance Sheet
as of May 31
Assets
Cash $6,630
Accounts receivable $103,600
Inventory $51,500
Buildings and equipment, net of depreciation $240,650
Total Assets $402,380
Liabilities and Stockholders' Equity
Accounts Payable $115,200
Note payable $23,200
Common Stock $180,000
Retained Earnings $83,980
Total Liabilities and Stockholders' Equity $402,380
Working note:
Buildings and equipment, net of depreciation $236,000
Add: New refrigerating equipment $6,800
Less: Depreciation for the month ($2,150)
Buildings and equipment, net of depreciation $240,650
Retained Earnings, April $72,050
Add: Net income $11,930
Retained Earnings, May $83,980

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