Minden Company is a wholesale distributor of premium European chocolates. The co
ID: 341706 • 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.
1. Calculate the expected cash collections for May.
2. Calculate the expected cash disbursements for merchandise purchases for May.
Total cash disbursements
Prepare a cash budget for May. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
Prepare a budgeted income statement for May.
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
Answers
Working
Sales
256000
(-)Cash Sales
76800
Credit Sale
179200
Collection of credit sale (50%)
$89600
Cash Sales
$76800
Collection from credit Sale (may)
$89600
Collection from accounts receivables
$78500
Total cash collections in May
$244900
Inventory to be Purchased
$188000
Payment for purchases in May (A=188000 x 40%])
$75200
Payment to April Accounts payable (B)
$72000
Total cash disbursement for mechandise purchase for May (A+B)
$147200
Minden Company
Cash Budget
For the Month of May
Beginning cash balance
$ 9,400.00
Add collections from customers
$ 2,44,900.00
Total cash available
$ 2,54,300.00
Less cash disbursements:
Purchase of inventory
$ 1,47,200.00
Selling and administrative expenses
$ 91,500.00
Purchases of equipment
$ 7,000.00
Total cash disbursements
$ 2,45,700.00
Excess of cash available over disbursements
$ 8,600.00
Financing:
Borrowing—note
$ 23,100.00
Repayments—note
$ (19,700.00)
Interest
$ (435.00)
Total financing
$ 2,965.00
Ending cash balance
$ 11,565.00
Working for COGS
Opening Inventory
44000
(+) purchases
188000
(-) Closing
83000
Cost of Goods Sold
$149000
Sales revenue (cash + Credit)
$ 2,56,000.00
(-)Cost of Goods Sold
$ 1,49,000.00
Gross Profit
$ 1,07,000.00
Selling and distribution expense
$ 95,500.00
Operating income
Interest expense
$ 435.00
Net Income
$ 11,065.00
Working for balance sheet
Assets
April 30 balance
Increased by
Decreased by
Closing Balance May 31
Cash
9400
268000
265835
11565 (matching with cash budget)
Accounts receivable
78500
179200
168100
89600
Inventory
44000
188000
149000
83000
Buildings and equipment, net of depreciation
221000
7000
4000
224000
Total assets
352900
642200
586935
408165
Liabilities and Stockholders’ Equity
Accounts payable
72000
188000
147200
112800
Note payable
19700
23100
19700
23100
Common stock
180000
180000
Retained earnings
81200
11065
92265
Total liabilities and stockholders’ equity
352900
222165
166900
408165
Final Balance Sheet as at may 31
Assets
Closing Balance May 31
Cash
$ 11,565.00
Accounts receivable
$ 89,600.00
Inventory
$ 83,000.00
Buildings and equipment, net of depreciation
$ 2,24,000.00
Total assets
$ 4,08,165.00
Liabilities and Stockholders’ Equity
Accounts payable
$ 1,12,800.00
Note payable
$ 23,100.00
Common stock
$ 1,80,000.00
Retained earnings
$ 92,265.00
Total liabilities and stockholders’ equity
$ 4,08,165.00
Sales
256000
(-)Cash Sales
76800
Credit Sale
179200
Collection of credit sale (50%)
$89600