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	$	16,500
Accounts receivable		67,000
Inventory		32,000
Buildings and equipment, net of depreciation		249,000
Total assets	$	364,500
Liabilities and Stockholders’ Equity
Accounts payable	$	68,750
Note payable		20,500
Common stock		180,000
Retained earnings		95,250
Total liabilities and stockholders’ equity	$	364,500

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

1. Sales are budgeted at $241,000 for May. Of these sales, $72,300 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.

2. Purchases of inventory are expected to total $191,000 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.

3. The May 31 inventory balance is budgeted at $86,000.

4. Selling and administrative expenses for May are budgeted at $76,200, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,300 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $170 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $6,600 will be purchased for cash during May.

7. During May, the company will borrow $27,000 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 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 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 collection from customers Total cash available 0 Less cash disbursements: Purchase of inventory Selling and administrative expenses Purchases of equipment Total cash disbursements 0 Excess of cash available over disbursements 0 Financing: Borrowing—note Repayments—note Interest Total financing 0 Ending cash balance $0

req 4

Prepare a budgeted income statement for May.

	Minden Company Budgeted Income Statement For the Month of May 0 0 $0

req 5

Prepare a budgeted balance sheet as of May 31.

	Minden Company Budgeted Balance Sheet May 31 Assets Total assets $0 Liabilities and Stockholders’ Equity Total liabilities and stockholders’ equity $0

Answer 1

Required budgets are as prepared below:

Minden Company
Schedule of expected Cash collections
For the Month ended May 31
	Month
Particulars	May
Cash Sales May	72,300
Collections on Accounts Receivable
April 30 balance	67,000
May Sales	84,350
Total cash Receipts	223,650

Particulars	Amount ($)
May Sales	241,000
Cash sales	72,300
Credit sales (Total sales minus cash sales)	168,700
Collected in May (168,700/2)	84,350
Accounts Receivable	84,350

Minden Company
Schedule of expected Cash Disbursements
For the Month ended May 31
	Month
Particulars	May
April 30 account payable balance	68,750
May purchases	76,400
Total cash payments	145,150

Particulars	Amount ($)
May purchases	191,000
Paid in may (40%)	76,400
Paid in June (60%)	114,600

Minden Company
Cash Budget
For the month of May
	Month
Particulars	May
Beginning Cash balance	$16,500
Add: Collection from customers	$223,650
Total cash available	$240,150
less: cash disbursement
Purchase of inventory	($145,150)
Selling and administrative expense	($76,200)
Purchase of equipment	($6,600)
Total cash disbursement	($227,950)
Excess of cash available over disbursement	$12,200
Financing
Borrowing-note	$27,000
Repayment-note	($20,500)
Interest	($170)
Total financing	$6,330
Ending Cash balance	$18,530

Minden Company
Budgeted Income Statement
May-31
Particulars	Amount ($)	Amount ($)
Sales		241,000
Less: Cost of goods sold (32,000+191,000-86,000)		137,000
Gross Profit		104,000
Less:
Depreciation	5,300
Selling and administrative exp	76,200	81,500
Net Profit before interest		22,500
Interest expense	$170
Net operating Income		22,330

Minden Company
Budgeted balance Sheet
May-31
Assets
Cash	18,530
Accounts Receivable	84,350
Inventory	86,000
Building and Equipment Net (249,000+6,600-5,300)	250,300
Total assets	439,180
Liabilities and Stockholders' Equity
Accounts Payable purchases	114,600
Note Payable	27,000
Common Stock	180,000
Retained earnings (95,250+22,330)	117,580
Total liabilities and stockholders' equity	439,180