Question

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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 $ 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

Solutions

Expert Solution

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

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