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 $ 18,700 Accounts receivable 70,250 Inventory 41,250 Buildings and equipment, net of depreciation 230,000 Total assets $ 360,200 Liabilities and Stockholders’ Equity Accounts payable $ 72,250 Note payable 13,700 Common stock 180,000 Retained earnings 94,250 Total liabilities and stockholders’ equity $ 360,200 The company is in the process of preparing a budget for May and has assembled the following data: a. Sales are budgeted at $214,000 for May. Of these sales, $64,200 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 $122,000 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 $47,500. d. Selling and administrative expenses for May are budgeted at $85,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,050 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $390 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $16,300 will be purchased for cash during May. g. During May, the company will borrow $24,500 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

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

Working note:
a	schedule for expected cash collections:
	Cash sales - May   (Given)	64200
	collections on Accounts receivable
	April 30 Balance	70250
	May sales (214000-64200)*50%)	74900
	Total cash receipts	209350
b	schedule of expected cash disbursements:
	April 30 Accounts Payable	72250
	Purchases from May (122000*40%)	48800
	Total cash Payments	121050
c	Cash budget for May
	Minden company
	cash budget
	For the month of may
	Beginning cash Balance	18700
	Add: collections from customers	209350
	Total cash available	228050
	Less: cash disbursements
	Purchase of inventory	121050
	Selling and administrative expense	85500
	Purchase of equipment	16300
	Total cash disbursements	222850
	Excess of cash available over disbursements	5200
	Financing
	Borrowing	24500
	Repayments	-13700
	Interest	-390
	Total financing	10410
	Ending cash balance	15610
d	Budgeted income statement
	Particulars	$	$
	Sales		214000
	Cost of goods sold
	Beginning inventory	41250
	Purchases	122000
	Goods available for sale	163250
	Ending inventory	47500
	Cost of goods sold		115750
	Gross Margin		98250
	Selling and administrative expense (85500+2050)		87550
	Net operating income		10700
	Interest expense		390
	Net income		10310
e	Budgeted Balance sheet:
	Cash	15610
	Acccounts receivable (214000-64200)*50%	74900
	Inventory	47500
	Building and depreciation, net of dep (230000+16300-2050)	244250
	Total assets	382260
	Liabilities and stock holders equity
	Accounts Payable (122000*60%)	73200
	Notes Payable	24500
	Common stock	180000
	Retained earnings (94250+10310)	104560
	Total liabilities and stockholders' equity	382260