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Question: “Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of…”

Answer: “Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of…”

1. Answer –

Expected cash collections from customers for May = $253250

Calculation:

As per given information,

Budgeted sales = $290000

Cash sales = $87000

And remainder (credit sales) = $290000 – $87000 = $203000

But, one-half of the credits sales are collected in the month of the sales are made.

So,

Collections of credit sales = $203000 * (1/2) = $101500

And also April 30 accounts receivable will be collected in May i.e. $64750

Therefore,

Expected cash collections from customers for May:

= Cash sales + Collections of credit sales + April 30 accounts receivable

= $87000 + $101500 + $64750 = $253250

2. Answer –

Expected cash disbursements for merchandise purchases of May = $154750

Calculation:

As per given information,

Expected purchase of inventory = $210000

But, 40% of purchases are paid in month of purchase.

So, Payment for purchases = $210000 * 40% = $84000

And also April 30 accounts payable will be paid in May i.e. $70750

Therefore,

Expected cash disbursements for merchandise purchases of May:

= Payment for purchases + April 30 account payable = $84000 + $70750 = $154750

Calculation:

1. Total cash available:

= Beginning cash balance + Collection from customers = $11500 + $253250 = $264750

2. Total cash disbursements:

= Purchase of merchandise + Selling and administrative expenses + Purchase of equipment

= $154750 + $96300 + $7600 = $258650

3. Excess of cash available over cash disbursement:

= Total cash available – Total cash disbursements = $264750 – $258650 = $6100

4. Total financing:

= Borrowing – Repayment – Interest paid = $23700 – $19900 – $450 = $3350

5. Ending cash balance:

= Excess of cash available over cash disbursement + Total financing = $6100 + $3350 = $9450

Note – Repayment (note) balance is previous note payable i.e. $19900

Calculation:

1. Cost of goods sold:

= Beginning inventory + Purchases – Ending inventory = $47000 + $210000 – $79500 = $177500

2. Gross margin:

= Sales – Cost of goods sold = $290000 – $177500 = $112500

3. Net operating income:

= Gross margin – (Selling and administrative expenses + Depreciation expense)

= $112500 – ($96300 + $5800) = $10400

4. Net income:

= Net operating income – Interest expense = $10400 – $450 = $9950

Calculation:

1. Accounts receivable:

One-half of the credits sales are collected in the month of the sales are made and remainder i.e. one-half is collected in following month.

So,

Accounts receivable = Credit sales * (1/2) = $203000 * (1/2) = $101500

2. Buildings and equipment, net of depreciation:

= Beginning balance of buildings and equipment + Purchase of equipment – depreciation expense

= $220000 + $7600 – $5800 = $221800

3. Accounts payable:

40% of purchases are paid in month of purchase are made and remainder paid in following month i.e. 60%. = Expected purchase * 60% = $210000 * 60% = $126000

4. Retained earnings:

= Beginning balance of retained earnings + Net income = $72600 + $9950 = $82550

Relevant knowledge

There is always an Estimation when Budgets are mentioned. A cash budget is a statement that shows cash receipts and cash payments in a given month or year. This statement is prepared by the company in order to determine if it has enough cash to cover operations and to adjust any shortfalls or gaps resulting from transactions. The cash budget has two parts: sources of cash and uses of cash

Conclusion

This is how you solve this type of task “Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of…”. Please leave a message below if you have any questions or comments.

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