Question

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet on April 30 is as follows:

MINDEN COMPANY Balance Sheet April 30
Assets
Cash	$	9,000
Accounts receivable, customers		54,000
Inventory		30,000
Buildings and equipment, net of depreciation		207,000
Total assets	$	300,000
Liabilities and Shareholders’ Equity
Accounts payable, suppliers	$	63,000
Note payable		14,500
Capital shares, no par		180,000
Retained earnings		42,500
Total liabilities and shareholders’ equity	$	300,000

The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as follows:

1. 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 are collected in the following month. All of the April 30 receivables will be collected in May.
2. Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. 40% 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 $40,000.
4. Operating 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.
5. 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.)
6. New refrigerating equipment costing $6,500 will be purchased for cash during May.
7. 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. Prepare a cash budget for May. (Any "Repayments" and "Interest" should be indicated by a minus sign.)

2. Prepare a budgeted income statement for May.

3. Prepare a budgeted balance sheet as of May 31.

Answer 1

Cash Budget
For month of May
Beginning Cash Balance	$            9,000.00
Cash Receipts
Cash Sales	$          60,000.00
Collection from credit sales	$        124,000.00	(200000-60000)/2+54000
Total Cash Receipts	$        184,000.00	(60000+54000+(140000)/2
Total Cash Available	$        193,000.00	opening cash +collections from customers
Cash Disbursements		(9000+184000)
Merchandise Inventory	$        111,000.00	(63000+120000*40%)
Operating Expenses	$          72,000.00
New Refrigerating Equipment	$            6,500.00
Total Cash Disbursements	$        189,500.00
Excess Cash over Disbursements	$            3,500.00
Financing
Borrowing	$          20,000.00
Repayment	$        -14,500.00
Interest	$                 -100.00
Total Financing	$            5,400.00
Ending Cash Balance	$          8,900.00
Budgeted Income Statement (May)
Sales Revenue	$        200,000.00
Cost of Goods Sold	$        110,000.00	30,000+120,000-40,000
Gross Profit	$        90,000.00
Cash Operating Expenses	$          72,000.00
Depreciation	$            2,000.00
Operating Income	$          16,000.00
Interest Expense	$                  100.00
Net Income	$          15,900.00
Balance Sheet
Assets
Cash	$          8,900.00
Accounts receivable, customers	$          70,000.00	(200000-60000)*1/2
Inventory	$          40,000.00
Buildings and equipment, net of depreciation	$        211,500.00	207000+6500-2000
Total assets	$        330,400.00
Liabilities and Shareholders’ Equity
Accounts payable, suppliers	$          72,000.00	120000*60%
Note payable	$          20,000.00
Capital shares, no par	$        180,000.00
Retained earnings	$          58,400.00	42500+15900
Total liabilities and shareholders’ equity	$        330,400.00