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	$	9,400
Accounts receivable		78,500
Inventory		44,000
Buildings and equipment, net of depreciation		221,000
Total assets	$	352,900
Liabilities and Stockholders’ Equity
Accounts payable	$	72,000
Note payable		19,700
Common stock		180,000
Retained earnings		81,200
Total liabilities and stockholders’ equity	$	352,900

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

Sales are budgeted at $256,000 for May. Of these sales, $76,800 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.

Purchases of inventory are expected to total $188,000 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 $83,000.

Selling and administrative expenses for May are budgeted at $91,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,000 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $435 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $7,000 will be purchased for cash during May.

During May, the company will borrow $23,100 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.

1. Calculate the expected cash collections for May.

2. Calculate the expected cash disbursements for merchandise purchases for May.

	Total cash collections Total cash disbursements

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 collections 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

Prepare a budgeted income statement for May.

	Minden Company Budgeted Income Statement For the Month of May 0 0 $0

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

Answer 1

• All working forms part of the answer
• Requirement 1: Cash collection

Working

Sales	256000
(-)Cash Sales	76800
Credit Sale	179200
Collection of credit sale (50%)	$89600

Cash Sales	$76800
Collection from credit Sale (may)	$89600
Collection from accounts receivables	$78500
Total cash collections in May	$244900

• Requirement 2: Cash disbursement for purchases

Inventory to be Purchased	$188000
Payment for purchases in May (A=188000 x 40%])	$75200
Payment to April Accounts payable (B)	$72000
Total cash disbursement for mechandise purchase for May (A+B)	$147200

• Requirement 3: Cash Budget

Minden Company
Cash Budget
For the Month of May
Beginning cash balance	$        9,400.00
Add collections from customers	$ 2,44,900.00
Total cash available	$ 2,54,300.00
Less cash disbursements:
Purchase of inventory	$ 1,47,200.00
Selling and administrative expenses	$      91,500.00
Purchases of equipment	$        7,000.00
Total cash disbursements	$ 2,45,700.00
Excess of cash available over disbursements	$        8,600.00
Financing:
Borrowing—note	$      23,100.00
Repayments—note	$   (19,700.00)
Interest	$         (435.00)
Total financing	$        2,965.00
Ending cash balance	$      11,565.00

• Requirement 4: Income Statement

Working for COGS

Opening Inventory	44000
(+) purchases	188000
(-) Closing	83000
Cost of Goods Sold	$149000

Sales revenue (cash + Credit)	$ 2,56,000.00
(-)Cost of Goods Sold	$ 1,49,000.00
Gross Profit	$ 1,07,000.00
Selling and distribution expense	$      95,500.00
Operating income	$11,500.00
Interest expense	$            435.00
Net Income	$      11,065.00

• Requirement 5: Balance Sheet

Working for balance sheet

Assets	April 30 balance	Increased by	Decreased by	Closing Balance May 31
Cash	9400	268000	265835	11565 (matching with cash budget)
Accounts receivable	78500	179200	168100	89600
Inventory	44000	188000	149000	83000
Buildings and equipment, net of depreciation	221000	7000	4000	224000
Total assets	352900	642200	586935	408165
Liabilities and Stockholders’ Equity
Accounts payable	72000	188000	147200	112800
Note payable	19700	23100	19700	23100
Common stock	180000			180000
Retained earnings	81200	11065		92265
Total liabilities and stockholders’ equity	352900	222165	166900	408165

Final Balance Sheet as at may 31

Assets	Closing Balance May 31
Cash	$        11,565.00
Accounts receivable	$        89,600.00
Inventory	$        83,000.00
Buildings and equipment, net of depreciation	$     2,24,000.00
Total assets	$     4,08,165.00
Liabilities and Stockholders’ Equity
Accounts payable	$     1,12,800.00
Note payable	$        23,100.00
Common stock	$     1,80,000.00
Retained earnings	$        92,265.00
Total liabilities and stockholders’ equity	$     4,08,165.00