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:

1. 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.

2. 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.

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

4. 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.

5. 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.)

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

7. 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 from customers 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 from customers 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 Less cash disbursements: Purchase of inventory Selling and administrative expenses Purchases of equipment Total cash disbursements Excess of cash available over disbursements Financing: Borrowing—note Repayments—note Interest Total financing Ending cash balance

Prepare a budgeted income statement for May.

	Minden Company Budgeted Income Statement For the Month of May

Prepare a budgeted balance sheet as of May 31.

	Minden Company Budgeted Balance Sheet May 31 Assets Total assets Liabilities and Stockholders’ Equity Total liabilities and stockholders’ equity

Answer 1

Solution 1a:
Minden Company
Schedule of Expected Cash collection
Cash Sales of May	78000
Collection of Accounts Receivable:
April 30 Balance	70200
May Credit sales [(260000-78000)*1/2]	91000
Total Cash collection	239200
Minden Company
Schedule of Expected Cash disbursement
April 30 Accounts payable balance	74750
May Purchases (155000*40%)	62000
Total Cash disbursement	136750
Solution 1b:
Minden Company
Cash Budget
Beginning Cash Balance	15800
Add: Collection from customers	239200
Total cash available	255000
Less: Cash Disbursement:
Purchase of Inventory	136750
Selling and administrative expenses	99500
Purchases of Equipment	11000
Total Cash disbursement	247250
Excess of cash available over disbursement	7750
Financing:
Borrowing-Note	21500
Repayments-Note	-14700
Interest	-460
Total Financing	6340
Ending cash Balance	14090
Solution 2:
Minden Company
Budgeted Income Statement
For the month of May
Sales	260000
Less: Cost of goods sold (38750+155000-59500)	134250
Gross Margin	125750
Less: Selling and administrative expenses (99500+4550)	104050
Net Operating income	21700
Less: Interest expense	460
Net Income	21240
Solution 3:
Minden Company
Budgeted Balance Sheet
May-31
Assets
Cash	14090
Accounts receivable	91000
Inventory	59500
Building and Equipment, net of Depreciation (222000+11000-4550)	228450
Total Assets	393040
Liabilities and Stockholders' Equity
Accounts Payable (155000*60%)	93000
Notes payable	21500
Common stock	180000
Retained earnings (77300+21240)	98540
Total Liabilities and Stockholders' Equity	393040