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	$	15,800
Accounts receivable		70,200
Inventory		38,750
Buildings and equipment, net of depreciation		222,000
Total assets	$	346,750
Liabilities and Stockholders’ Equity
Accounts payable	$	74,750
Note payable		14,700
Common stock		180,000
Retained earnings		77,300
Total liabilities and stockholders’ equity	$	346,750

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

Sales are budgeted at $260,000 for May. Of these sales, $78,000 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 is collected in the following month. All of the April 30 accounts receivable will be collected in May.

Purchases of inventory are expected to total $155,000 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.

The May 31 inventory balance is budgeted at $59,500.

Selling and administrative expenses for May are budgeted at $99,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,550 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $460 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $11,000 will be purchased for cash during May.

During May, the company will borrow $21,500 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.

Answer 1

1-a)	Schedule of Expected cash collection
	Cash sales-May					78,000
	Collections on account receivable
	April 30 balance					70,200
	May sales		(260000-78000)*50%			91000
	total cash recepits					239,200
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					74,750
	May purchases		(155000*40%)			62000
	total cash payments					136,750
1-b)	Cash Budget
	Beginning cash balance					15,800
	Add Collections from customers					239,200
	total cash available					255,000
	less Cash disbursements
	purchase of inventoru					136,750
	selling and administrative expense					99,500
	purchase of Equipment					11,000
	total cash disbursements					247,250
	Excess of cash available over disbursements					7,750
	financing:
	borrowing -note					21,500
	Repayments-note					-14,700
	interest					-460
	total financing					6,340
	Ending cash balance					14,090
	Budgeted income statement
	sales					260,000
	cost of goods sold:
	beginning inventory				38,750
	purchases				155,000
	goods available for sale				193,750
	ending invnetory				59,500
	cost of goods sold:					134,250
	Gross margin					125,750
	Selling and administrative expesne					104,050
	net operating income					21,700
	interest expesne					460
	net income					21,240
	Budgeted balance sheet
	Assets
	Cash					14,090
	Account receivable					91000
	inventory					59,500
	buildings & equipment,net of depreciaiton					228450
	(232000+8800-5000)
	total Assets					393,040
	Laibilities & stockholder's Equity
	Accounts payable					93000
	note payable					21,500
	common stock					180,000
	Retained earnings					98,540
	total liabilities & stockholders equity					393040