Question

1.

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	$	10,000
Accounts receivable		62,750
Inventory		32,750
Buildings and equipment, net of depreciation		219,000
Total assets	$	324,500
Liabilities and Stockholders’ Equity
Accounts payable	$	69,000
Note payable		22,700
Common stock		180,000
Retained earnings		52,800
Total liabilities and stockholders’ equity	$	324,500

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

Sales are budgeted at $254,000 for May. Of these sales, $76,200 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 $137,000 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 $45,000.

Selling and administrative expenses for May are budgeted at $98,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $5,550 for the month.

The note payable on the April 30 balance sheet will be paid during May, with $350 in interest. (All of the interest relates to May.)

New refrigerating equipment costing $8,700 will be purchased for cash during May.

During May, the company will borrow $27,400 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

	Minden Company
Requirement 1
	Expected cash collection for						May
	Sales for May			254000
	Cash sales			76200			76200
	Credit sales			177800
	50% of above will be collected in the month of May itself						88900
	Accounts receivable as of April 30 will be collected in May						62750
	Total Cash Collection for the month of May						227850
Requirement 2
	Expected Cash disbursement for merchandise for						May
	Purchases for May			137000
	40% of the above will be paid in May itself						54800
	Accounts Payable as of April 30 will be paid in May						69000
	Total cash disbursement for merchandise						123800
Requirement 3
	Cash Budget for May
	Beginning Cash Balance						10000
	Collection from Sales & customers						227850
	Borrowing from Bank as Note Payable						27400
	Total cash Receipts						255250
	Less :
	Cash Disbursement towards
	Merchandise						123800
	Selling and administrative expenses						98400
	Repayment of Note payable						22700
	Interest on above note payable						350
	Purchase of New Refrigerating Equipment						8700
	Total Cash Payments						253950
	Ending Cash balance						11300
Requirement 4
	Budgeted Income statement for May
	Revene from Sales						254000
	Less :
	Cost of goods sold
		Beginning Inventory			32750
		Add : Purchases			137000
		Less :Ending Inventory			45000
	Total cost of goods sold						124750
	Operating expenses
		Selling and administrative expenses			98400
		Depreciation			5550
	Total Operating expenses						103950
	Operating Income						25300
	Less :	Interest for the month of May					350
	Net Income						24950
Requirement 5
	Budgeted Balance Sheet as of May 31.
	Minden Company
	Balance Sheet
	May-31
	Assets
	Cash	$	11,300
	Accounts receivable		88,900
	Inventory		45,000
	Buildings and equipment, net of depreciation		2,22,150
	Total assets	$	3,67,350
	Liabilities and Stockholders’ Equity
	Accounts payable	$	82,200
	Note payable		27,400
	Common stock		1,80,000
	Retained earnings		77,750
	Total liabilities and stockholders’ equity	$	3,67,350