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	$	11,100
Accounts receivable		72,500
Inventory		37,500
Buildings and equipment, net of depreciation		238,000
Total assets	$	359,100
Liabilities and Stockholders’ Equity
Accounts payable	$	68,000
Note payable		19,400
Common stock		180,000
Retained earnings		91,700
Total liabilities and stockholders’ equity	$	359,100

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

1. Sales are budgeted at $255,000 for May. Of these sales, $76,500 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 $189,000 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 $77,500.

4. Selling and administrative expenses for May are budgeted at $93,600, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,250 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $370 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $8,600 will be purchased for cash during May.

7. During May, the company will borrow $29,500 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 Questions:

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

WORKING NOTES
Working Note 1 CASH RECEIPT
Sales Account	Debit	Credit
Cash Account		76,500
Account receivable		178,500
		255,000
Account Receivable Account	Debit	Credit
Opening balance	72,500
sales	178,500
1/2 of sales collected in same month		89,250
April collection		72,500
balance c/d		89,250
	251,000	251,000
Inventory Account
Opening	37,500
purchase	189,000
cost of goods sold		149,000
balance c/d		77,500
	226,500	226,500
Account Payable
Opening		68,000
purchase		189,000
payment for current month 40%	75,600
april month payment	68,000
Balance C/d	113,400
	257,000	257,000
Note Payable
Opening		19,400
Paid	19,400
Receipt		29,500
balance c/d	29,500
	48,900	48,900
Buildings and equipment,
opening	238,000
addition	8,600
depreciation		6,250
balance c/d		240,350
	246,600	246,600

Midden Company
Cash Budget for the Month Of May
Particulars	Amount in $
Beginning Cash Balance	11,100
ADD
cash sales	76,500
cash from credit sales	161,750
Note Payable new receipt	29,500
Total cash budgeted	278,850
Cash Payments
Payment to supplier	143,600
Selling and Admin Payable	93,600
note Payable	19,400
interest on note Payable	370
Purchase of refrigerator	8,600
Total Payments	265,570
Budgeted cash on 31st may	13,280
Midden Company
Budgeted Income statement for the Month Of May
Particulars	Amount in $
Budgeted net sales	255,000
Less Budgeted cost of sales	149,000
(From Working Note inventory Account)
Gross profit	106,000
Selling and Admin exp	93,600
Depreciation	6,250
Interest	370
NET Profit for the month of May	5,780
Midden Company
Budgeted Balance sheet as on 31st May
Assets	Amount in $
Cash	13,280
Accounts receivable	89,250
Inventory	77,500
Buildings and equipment, net of depreciation	240,350
Total Assets	420,380
Liabilities and Stockholders’ Equity
Accounts payable	113400
Note payable	29500
Common stock	180000
Retained earnings	97,480
(opening+Net profit of month)
Total Liabilities	420,380