Minden Company is a wholesale distributor of premium European chocolates. The co
ID: 2552335 • 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 $231,000 for May. Of these sales, $69,300 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 $139,000 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 $55,000.
Selling and administrative expenses for May are budgeted at $83,400, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,200 for the month.
The note payable on the April 30 balance sheet will be paid during May, with $155 in interest. (All of the interest relates to May.)
New refrigerating equipment costing $12,500 will be purchased for cash during May.
During May, the company will borrow $24,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.
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 $ 12,000 Accounts receivable 77,500 Inventory 42,000 Buildings and equipment, net of depreciation 225,000 Total assets $ 356,500 Liabilities and Stockholders’ Equity Accounts payable $ 78,250 Note payable 19,300 Common stock 180,000 Retained earnings 78,950 Total liabilities and stockholders’ equity $ 356,500
Explanation / Answer
1. expected cash collections for May.
April 30 accounts receivable = 77,500
Cash sales = $69,300
collection of credit sales may [(231,000-$69,300)*50%] = 80850
= $227650
2. the expected cash disbursements for merchandise purchases for May
April 30 accounts payable = 78,250
payment of Credit purchase in May ($139,000*40%) = 55600
= $133850
3 cash budget
Beginning cash balance =12,000
add:cash collections = $227650
less: cash disbursement = $133850
surplus in cash = 105800
less:Selling and administrative expense =$83,400
less: payment of notes[19,300+155] =19455
less:New refrigerating equipment = $12,500
Borrowing
add: new note payable = $24,000
Ending cash balance = 14445