Question

Problem 8-17 Cash Budget; Income Statement; Balance Sheet [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10] 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 $ 9,000 Accounts receivable 54,000 Inventory 30,000 Buildings and equipment, net of depreciation 207,000 Total assets $ 300,000 Liabilities and Stockholders’ Equity Accounts payable $ 63,000 Note payable 14,500 Common stock 180,000 Retained earnings 42,500 Total liabilities and stockholders’ equity $ 300,000 The company is in the process of preparing a budget for May and has assembled the following data: a. 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 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 $120,000 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 $40,000. d. Selling and administrative 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. e. 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.) f. New refrigerating equipment costing $6,500 will be purchased for cash during May. g. 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.

Answer 1

1-a)	Schedule of Expected cash collection
	Cash sales-May					60,000
	Collections on account receivable
	April 30 balance					54,000
	May sales		(200000-60000)*50%			70000
	total cash recepits					184,000
	Schedule of Expected cash disbursements
	April 30 accounts payable balance					63,000
	May purchases		(120000*40%)			48000
	total cash payments					111,000
1-b)	Cash Budget
	Beginning cash balance					9,000
	Add Collections from customers					184,000
	total cash available					193,000
	less Cash disbursements
	purchase of inventoru					111,000
	selling and administrative expense					72,000
	purchase of Equipment					6,500
	total cash disbursements					189,500
	Excess of cash available over disbursements					3,500
	financing:
	borrowing -note					20,000
	Repayments-note					-14,500
	interest					-100
	total financing					5,400
	Ending cash balance					8,900
	Budgeted income statement
	sales					200,000
	cost of goods sold:
	beginning inventory				30,000
	purchases				120,000
	goods available for sale				150,000
	ending invnetory				40,000
	cost of goods sold:					110,000
	Gross margin					90,000
	Selling and administrative expesne					74,000
	net operating income					16,000
	interest expesne					100
	net income					15,900
	Budgeted balance sheet
	Assets
	Cash					8,900
	Account receivable					70000
	inventory					40,000
	buildings & equipment,net of depreciaiton					211500
	total Assets					330,400
	Laibilities & stockholder's Equity
	Accounts payable					72000
	note payable					20,000
	common stock					180,000
	Retained earnings					58,400
	total liabilities & stockholders equity					330400