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	$	9,100
Accounts receivable		77,250
Inventory		40,000
Buildings and equipment, net of depreciation		239,000
Total assets	$	365,350
Liabilities and Stockholders’ Equity
Accounts payable	$	79,750
Note payable		12,300
Common stock		180,000
Retained earnings		93,300
Total liabilities and stockholders’ equity	$	365,350

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

1. Sales are budgeted at $266,000 for May. Of these sales, $79,800 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.

2. Purchases of inventory are expected to total $170,000 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 $44,500.

4. Selling and administrative expenses for May are budgeted at $81,900, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,450 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $140 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $9,600 will be purchased for cash during May.

7. During May, the company will borrow $23,400 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.

Answer 1

Required Budgets are as prepared below:

Particulars	Amount ($)
May Sales	266,000
Cash sales	79,800
Credit sales (Total sales minus cash sales)	186,200
Collected in May (186,200/2)	93,100
Accounts Receivable	93,100
Minden Company
Schedule of expected Cash collections
For the Month ended May 31
	Month
Particulars	May
Cash Sales May	79,800
Collections on Accounts Receivable
April 30 balance	77,250
May Sales	93,100
Total cash Receipts	250,150
Particulars	Amount ($)
May purchases	170,000
Paid in may (40%)	68,000
Paid in June (60%)	102,000
Minden Company
Schedule of expected Cash Disbursements
For the Month ended May 31
	Month
Particulars	May
April 30 account payable balance	79,750
May purchases	68,000
Total cash payments	147,750
Minden Company
Cash Budget
For the month of May
	Month
Particulars	May
Beginning Cash balance	$9,100
Add: Collection from customers	$250,150
Total cash available	$259,250
less: cash disbursement
Purchase of inventory	($147,750)
Selling and administrative expense	($81,900)
Purchase of equipment	($9,600)
Total cash disbursement	($239,250)
Excess of cash available over disbursement	$20,000
Financing
Borrowing-note	$23,400
Repayment-note	($12,300)
Interest	($140)
Total financing	$10,960
Ending Cash balance	$30,960
Minden Company
Budgeted Income Statement
May-31
Particulars	Amount ($)	Amount ($)
Sales		266,000
Less: Cost of goods sold (40,000+170,000-44,500)		165,500
Gross Profit		100,500
Less:
Depreciation	6,450
Selling and administrative exp	81,900	88,350
Net Profit before interest		12,150
Interest expense	$140
Net operating Income		12,010
Minden Company
Budgeted balance Sheet
May-31
Assets
Cash	30,960
Accounts Receivable	93,100
Inventory	44,500
Building and Equipment Net (239,000+9,600-6,450)	242,150
Total assets	410,710
Liabilities and Stockholders' Equity
Accounts Payable purchases	102,000
Note Payable	23,400
Common Stock	180,000
Retained earnings (93,300+12,010)	105,310
Total liabilities and stockholders' equity	410,710