Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

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:

1. Sales are budgeted at $240,000 for May. Of these sales, $72,000 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 $118,000 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 $31,500.
4. Selling and administrative expenses for May are budgeted at $93,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,400 for the month.
5. The note payable on the April 30 balance sheet will be paid during May, with $160 in interest. (All of the interest relates to May.)
6. New refrigerating equipment costing $15,000 will be purchased for cash during May.
7. During May, the company will borrow $26,600 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

1.

Schedule of cash collections:

Cash sales—May	$	72,000
Collections on account receivable:
April 30 balance		75,500
May sales (50% × ($240,000 – $72,000))		84,000
Total cash collections	$	231,500

2.

Schedule of expected cash disbursements:

Schedule of cash disbursements for purchases:
April 30 accounts payable balance	$	86,750
May purchases (40% × $118,000)		47,200
Total cash disbursements	$	133,950

4.

Cost of goods sold:

Beginning inventory	$	37,000
Add Purchases		118,000
Goods available for sale		155,000
Ending inventory		31,500
Cost of goods sold	$	123,500

Selling and administrative expenses:

$93,500 + $2,400 = $95,900

5.

Assets:

Accounts receivable = 50% × $168,000 = $84,000

Buildings and equipment, net of depreciation = $258,000 + $15,000 – $2,400 = $270,600

Liabilities and stockholders’ equity:

Accounts payable = 60% × $118,000 = $70,800

Retained earnings = $104,750 + $20,440 = $125,190

Thanks