Minden Company is a wholesale distributor of premium European chocolates. The co
ID: 2437222 • 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:
The company is in the process of preparing a budget for May and has assembled the following data:
Sales are budgeted at $256,000 for May. Of these sales, $76,800 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.
Purchases of inventory are expected to total $188,000 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 $83,000.
Selling and administrative expenses for May are budgeted at $91,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,000 for the month.
The note payable on the April 30 balance sheet will be paid during May, with $435 in interest. (All of the interest relates to May.)
New refrigerating equipment costing $7,000 will be purchased for cash during May.
During May, the company will borrow $23,100 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.
Minden CompanyBalance Sheet
April 30 Assets Cash $ 9,400 Accounts receivable 78,500 Inventory 44,000 Buildings and equipment, net of depreciation 221,000 Total assets $ 352,900 Liabilities and Stockholders’ Equity Accounts payable $ 72,000 Note payable 19,700 Common stock 180,000 Retained earnings 81,200 Total liabilities and stockholders’ equity $ 352,900
Explanation / Answer
Answer 1. Sales Budget May Sales 256,000.00 Cash Sales 76,800.00 Credit Sales 179,200.00 Budgeted Cash Collections May Cash Sales 76,800.00 Collection from Accounts Receivables Accounts Receivables - April 78,500.00 MAy Sales - $179,200 X 50% 89,600.00 Total cash Collections 244,900.00 Answer 2. Schedule of Cash payments to Suppliers May Cash Payment Accounts Payable - April 72,000.00 May Purchases - $188,000 X 40% 75,200.00 Total Cash Payment to Suppliers 147,200.00 Answer 3. Cash budget Oct Opening cash Balance 9,400.00 Add: receipts Collection from Customers 244,900.00 Note Payable Issued 23,100.00 Total Cash available 277,400.00 Less: Disbursements Cash Disbursement - Accounts Payable 147,200.00 Selling & Admn. Exp. - $91,500 91,500.00 Note Payable Paid 19,700.00 Interest on Notes Payable 435.00 Refrigerating Equipment Purchased 7,000.00 Total Disbursement 265,835.00 Cash Balance Closing 11,565.00 Answer 4. Income Statement For the Month Ending May 31 Sales 256,000.00 Cost of Goods Sold Beginning Inventory 44,000.00 Add: Purchases 188,000.00 Goods Available for Sale 232,000.00 Less: Ending Inventory 83,000.00 149,000.00 Gross Margin 107,000.00 Less: Selling & Admn. Exp. ($91,500 + $4,000) 95,500.00 Net Operating Income 11,500.00 Less: Interest Expense 435.00 Net Income 11,065.00 Answer 5. Balance Sheet As on Oct 31 Assets Current Assets Cash 11,565.00 Accounts receivables 89,600.00 Inventory 83,000.00 184,165.00 Fixed Assets Building & Equipment 221,000.00 Add: Purchase Refrigerating Equip. 7,000.00 Less: Depreciation (4,000.00) 224,000.00 Total Assets 408,165.00 Liabilities & Stockholders' Equity Liabilities Current Liabilities Accounts Payable 112,800.00 Note Payable 23,100.00 135,900.00 Long Term Liabilities - Total liabilities 135,900.00 Shareholders's Equity Common Stock 180,000.00 Retained Earnings 92,265.00 Total Stockholders equity 272,265.00 Total liabilities & Stockholders' Equity 408,165.00 Schedule of Retained Earnings As on May 31 Opening Balance 81,200.00 Add: net income 11,065.00 Closing Balance 92,265.00