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	$	12,000
Accounts receivable		77,500
Inventory		42,000
Buildings and equipment, net of depreciation		225,000
Total assets	$	356,500
Liabilities and Stockholders’ Equity
Accounts payable	$	78,250
Note payable		19,300
Common stock		180,000
Retained earnings		78,950
Total liabilities and stockholders’ equity	$	356,500

  

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

  

a.	Sales are budgeted at $231,000 for May. Of these sales, $69,300 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 $139,000 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 $55,000.
d.	Selling and administrative expenses for May are budgeted at $83,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,200 for the month.
e.	The note payable on the April 30 balance sheet will be paid during May, with $155 in interest. (All of the interest relates to May.)
f.	New refrigerating equipment costing $12,500 will be purchased for cash during May.
g.	During May, the company will borrow $24,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Required:
1-a.	Prepare a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases..

  

1-b.	Prepare a cash budget for May. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

  

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

Answer 1-a
Sales Budget
	May
Sales	231,000
Cash Sales	69,300
Credit Sales	161,700
Budgeted Cash Collections
	May
Cash Sales	69,300
Collection from Accounts Receivables
Accounts Receivables - April	77,500
MAy Sales - $161,700 X 50%	80,850
Total cash Collections	227,650
Schedule of Cash payments to Suppliers
	May
Cash Payment
Accounts Payable - April	78,250
May Purchases - $139,000 X 40%	55,600
Total Cash Payment to Suppliers	133,850
Answer 1-b.
Cash budget
	Oct
Opening cash Balance	12,000
Add: receipts
Collection from Customers	227,650
Note Payable Issued	24,000
Total Cash available	263,650
Less: Disbursements
Cash Disbursement - Accounts Payable	133,850
Selling & Admn. Exp. - $83,400 - $6,200	77,200
Note Payable Paid	19,300
Interest on Notes Payable	155
Refrigerating Equipment Purchased	12,500
Total Disbursement	243,005
Cash Balance Closing	20,645
Answer 2.
Income Statement
For the Month Ending May 31
Sales		231,000
Cost of Goods Sold
Beginning Inventory	42000
Add: Purchases	139000
Goods Available for Sale	181000
Less: Ending Inventory	55000	126,000
Gross Margin		105,000
Less: Selling & Admn. Exp.		83,400
Net Operating Income		21,600
Less: Interest Expense		155
Net Income		21,445
Answer 3.
Balance Sheet
As on Oct 31
Assets
Current Assets
Cash	20,645
Accounts receivables	80,850
Inventory	55,000	156,495
Fixed Assets
Building & Equipment	225,000
Add: Purchase Refrigerating Equip.	12,500
Less: Depreciation	(6,200)	231,300
Total Assets		387,795
Liabilities & Stockholders' Equity
Liabilities
Current Liabilities
Accounts Payable	83,400
Note Payable	24,000	107,400
Long Term Liabilities		-
Total liabilities		107,400
Shareholders's Equity
Common Stock	180,000
Retained Earnings	100,395
Total Stockholders equity		280,395
Total liabilities & Stockholders' Equity		387,795
Schedule of Retained Earnings
As on May 31
Opening Balance		78,950
Add: net income		21,445
Closing Balance		100,395