Minden Company is a wholesale distributor of premium European chocolates. The co
ID: 2357424 • Letter: M
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 $9,300 Accounts receivable 62,000 Inventory 31,000 Buildings and equipment, net of depreciation 517,700 Total assets $620,000 Liabilities and Stockholders' Equity Accounts payable $74,400 Note payable 13,640 Capital stock, no par 457,560 Retained earnings 74,400 Total liabilities and stockholders' equity $620,000 The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as stated below: a. Sales are budgeted at $267,000 for May. Of these sales, $65,000 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 $194,000 during May. These purchases will all be on account. Sixty 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 $39,000. d. Selling and administrative expenses for May are budgeted at $34,000, 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 $500 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $8,000 will be purchased for cash during May. g. During May, the company will borrow $23,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year. 4.value: 10.00 points Requirement 1: (a) What is the expected cash receipts from sales and the expected cash payments for merchandise purchases? (Omit the "$" signs in your response.) Total cash receipts $ Total cash payments $ (b) Compute the following for the month of May. (Hint: Prepare your answer using the layout of a Cash Budget.) (Deficiencies should be preceded by a minus sign when appropriate. Input all other amounts as positive values. Omit the "$" signs in your response.) Total cash available $ Total cash disbursements Excess (deficiency) of receipts over disbursements Total financing Cash balance, ending $ rev: 02-17-2011 check my workeBook Links (5)references 5.value: 10.00 points Requirement 2: Prepare a budgeted income statement for May. (Input all amounts as positive values. Omit the "$" sign in your response.) Minden Company Budgeted Income Statement For the Month of May $ Cost of goods sold: $ : : $ rev: 02-17-2011 check my workeBook Links (5)references 6.value: 10.00 points Requirement 3: Prepare a budgeted balance sheet as of May 31. (Omit the "$" sign in your response.) Minden Company Budgeted Balance Sheet May 31 Assets Liabilities and Equity Cash $ Accounts payable $ Accounts receivable Note payable Inventory Capital stock Buildings and equipment, net of depreciation Retained earnings Total assets $ Total liabilities and equity $Explanation / Answer
a) Cash budgeting is part of the process of preparing a master or operational budget. What purposes does the preparation of a master budget serve? (5 marks)
SOLUTION
b) If a company prepares a budgeted income statement and balance sheet, why is a cash budget necessary? (5 marks)
SOLUTION
c) Prepare a cash budget for May. Show calculations. (10 marks)
Cash Receipts
Sales – May monthly cash sales
60,000 (1 mark)
Sales – May credit sales 70% 200,000@50%
70,000 (1 mark)
Sales – April credit sales (accounts receivable)
54,000(1 mark)
184,000
Note payable (received)
20,000 (1 mark)
Total cash receipts
$204,000
Cash Disbursements
Purchases – May 120,000@40%
48,000 (1 mark)
Purchases – April (accounts payable)
63,000 (1 mark)
Operating expenses
72,000 (1 mark)
Note payable and interest ($14,500+100)
14,600 (1 mark)
Equipment purchase
6,500 (1 mark)
Total cash disbursements
204,100
Net cash
(100)
Cash, beginning of year
9,000 (1 mark)
Cash, end of year
$8,900
d) How can sensitivity analysis be used to increase the benefits of budgeting?(5 marks)
SOLUTION
Cash Receipts
Sales – May monthly cash sales
60,000 (1 mark)
Sales – May credit sales 70% 200,000@50%
70,000 (1 mark)
Sales – April credit sales (accounts receivable)
54,000(1 mark)
184,000
Note payable (received)
20,000 (1 mark)
Total cash receipts
$204,000
Cash Disbursements
Purchases – May 120,000@40%
48,000 (1 mark)
Purchases – April (accounts payable)
63,000 (1 mark)
Operating expenses
72,000 (1 mark)
Note payable and interest ($14,500+100)
14,600 (1 mark)
Equipment purchase
6,500 (1 mark)
Total cash disbursements
204,100
Net cash
(100)
Cash, beginning of year
9,000 (1 mark)
Cash, end of year
$8,900