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	$	10,300
Accounts receivable		70,000
Inventory		43,000
Buildings and equipment, net of depreciation		227,000
Total assets	$	350,300
Liabilities and Stockholders’ Equity
Accounts payable	$	86,000
Note payable		23,000
Common stock		180,000
Retained earnings		61,300
Total liabilities and stockholders’ equity	$	350,300

  

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

  

a.	Sales are budgeted at $276,000 for May. Of these sales, $82,800 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 $147,000 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 $43,000.
d.	Selling and administrative expenses for May are budgeted at $97,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,200 for the month.
e.	The note payable on the April 30 balance sheet will be paid during May, with $235 in interest. (All of the interest relates to May.)
f.	New refrigerating equipment costing $12,100 will be purchased for cash during May.
g.	During May, the company will borrow $29,200 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.

Answer 1

1-a)	Schedule of Expected cash collection
	Cash sales-May					82,800
	Collections on account receivable
	April 30 balance					70,000
	May sales		(276000-82800)*50%			96600
	total cash recepits					249,400
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					86,000
	May purchases		(147000*40%)			58800
	total cash payments					144,800
1-b)	Cash Budget
	Beginning cash balance					10,300
	Add Collections from customers					249,400
	total cash available					259,700
	less Cash disbursements
	purchase of inventoru					144,800
	selling and administrative expense					97,500
	purchase of Equipment					12,100
	total cash disbursements					254,400
	Excess of cash available over disbursements					5,300
	financing:
	borrowing -note					29,200
	Repayments-note					-23,000
	interest					-235
	total financing					5,965
	Ending cash balance					11,265
	Budgeted income statement
	sales					276,000
	cost of goods sold:
	beginning inventory				43,000
	purchases				147,000
	goods available for sale				190,000
	ending invnetory				43,000
	cost of goods sold:					147,000
	Gross margin					129,000
	Selling and administrative expesne					97,500
	Depreciation expense					3,200
	net operating income					28,300
	interest expesne					235
	net income					28,065
	Budgeted balance sheet
	Assets
	Cash					11,265
	Account receivable					96600
	inventory					43,000
	buildings & equipment,net of depreciaiton					235900
	(227000+12100-3200)
	total Assets					386,765
	Laibilities & stockholder's Equity
	Accounts payable					88200
	note payable					29,200
	common stock					180,000
	Retained earnings		(61300+28065)			89,365
	total liabilities & stockholders equity					386765