Minden Company is a wholesale distributor of premium European chocolates. The co
ID: 2729049 • 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 $ 9,400 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 The company is in the process of preparing a budget for May and has assembled the following data: a. 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. b. 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. c. The May 31 inventory balance is budgeted at $83,000. d. 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. e. 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.) f. New refrigerating equipment costing $7,000 will be purchased for cash during May. g. During May, the company will borrow $23,100 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year. Required: 1-a. Prepare a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases.. 1-b. Prepare a cash budget for May. (Cash deficiency, repayments and interest should be indicated by a minus sign.) 2. Prepare a budgeted income statement for May using the absorption costing income statement format 3. Prepare a budgeted balance sheet as of May 31.
Explanation / Answer
Requirement 1-a:
Schedule of expected cash collections from Sales and Schedule of Expected Cash Disbursements for merchandise payments:
Cash Collections from Sales:
Particulars
Amount ($)
Cash Sales
76800
Half of the credit sales ((256000 - 76800) / 2)
89600
April 30 Accounts Receivable
78500
Total Cash Collections
244900
Cash Disbursements for purchases:
Particulars
Amount ($)
40% of purchases (40% (188000))
75200
April 3 Accounts Payable
72000
Total Cash Disbursements
147200
Requirement 1-b:
Cash Budget for May:
Particulars
Amount ($)
April 30 Cash Balance
9400
Cash Collections from Sales
244900
Cash Disbursements for May
-147200
Selling and administrative expenses
-91500
April 30 Note Payable
-19700
Interest on Note Payable
-435
Purchase of refrigerating Equipment
-7000
Borrowing from Bank
23100
11565
Requirement 2:
Budgeted Income Statement for May:
Particulars
Amount ($)
Sales
256000
Less: Cost of Goods Sold
Opening Inventory
44000
Purchases
188000
-Closing Stock
-83000
-149000
Gross Profit
107000
Less: Selling and Administrative Costs
91500 + 4000
-95500
Less: Interest on Note Payable
-435
Net Profit
11065
Requirement 3:
Budgeted Balance Sheet as of May 31:
Liabilities and Stockholders’ Equity
Amount ($)
Assets
Amount ($)
Common Stock
180000
Buildings & Equipment (221000 + 7000 - 4000)
224000
Retained Earnings
81200
Inventory
83000
Net Profit
11065
Accounts Receivable ((256000-76800) / 2)
89600
Accounts Payable (60% (188000))
112800
Cash
11565
Note Payable
23100
408165
408165
Particulars
Amount ($)
Cash Sales
76800
Half of the credit sales ((256000 - 76800) / 2)
89600
April 30 Accounts Receivable
78500
Total Cash Collections
244900