Minden Company is a wholesale distributor of premium European chocolates. The co
ID: 2519797 • 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 $ 9,100
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.
Explanation / Answer
Solution:
Part 1 ---
Expected Cash Collections for May:
May
Cash Sales
$79,800
Accounts Receivable Beginning
$77,250
May Credit Sales ($186,200*1/2)
$93,100
Total Expected Cash Collection
$250,150
Part 2 -- Expected cash disbursements for merchandise purchases for May
May
Accounts Payable beginning
$79,750
May Purchases (170,000 / 2)
$85,000
Expected Cash Disbursements for merchandise purchases
$164,750
Part 3 -- cash budget for May
Cash Budget
$$
Beginning Cash Balance
$9,100
Add: Collection from Customers
$250,150
Total Cash Available
$259,250
Less: Cash Disbursements for
Purchase of Merchandise
$164,750
Selling and administrative expenses
$81,900
Note Payable including interest (12300 + 140)
$12,440
Refigerating Equipment
$9,600
Total Cash Disbursements
$268,690
Excess (Deficiency) of available cash over cash disbursements
-$9,440
Financing:
Borrowings
$23,400
Repayment
Interest
Total Financing
$23,400
Ending balance
$13,960
Part 4 – Budgeted Income Statement for May
Budgeted Income Statement
$$
Sales Revenue
$266,000
Cost of Goods Sold (Total Purchase $170,000 - Ending Inventory 44,500)
$125,500
Gross Profit
$140,500
Expenses:
Selling and Administrative Expense
$81,900
Depreciation
$6,450
Interest Expense
$140
Total Expenses
$88,490
Operating Profit
$52,010
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Expected Cash Collections for May:
May
Cash Sales
$79,800
Accounts Receivable Beginning
$77,250
May Credit Sales ($186,200*1/2)
$93,100
Total Expected Cash Collection
$250,150