
Concept explainers
Refer to the data for Minden Company in Problem 8-19. The company is considering making the following changes to the assumptions underlying its masterbudget:
1. Sales are budgeted for S220, 000 for May.
2. Each month’s credit sales are collected 60% in the month of sale and 40% in the month following the sale.
3. The company pays for 50% of its merchandise purchases in the month of the purchase and the remaining 50% in the month following the purchase.
All other information from Problem 8-19 that is not mentioned above remains the same.
Required:
Using the new assumptions described above, complete the following requirements:
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. Using Schedule 9 as your guide, prepare a
5. Prepare a budgeted balance sheet as of May 31.
1.

The expected cash collection for May
Introduction: Net sales means the revenue that a company generates from the sales after deducting the amount of sales allowance, sales returns, and sales discount
Explanation of Solution
M. company | ||
Expected cash collection from sales | ||
Particulars | Calculations | Amount($) |
Cash sales of May | 60,000 | |
Collection of account receivable of April | 54,000 | |
Cash from may credit sale | 96,000 | |
Total cash receipts | 210,000 | |
Hence, $210,000 is the total receipts of sales.
2.

Te expected cash disbursement for merchandise purchase
Introduction: Net sales means the revenue that a company generates from the sales after deducting the amount of sales allowance, sales returns, and sales discount
Explanation of Solution
M. company | ||
Expected cash disbursements for merchandise purchases | ||
Particulars | Calculations | Amount($) |
Payment of Account payables balance as on April 30 | 63,000 | |
Payment of May’s credit purchases | 60,000 | |
Total cash disbursements | 123,000 | |
Hence, $123,000 is the total cash disbursements.
3.

To prepare: Cash budget for May
Introduction: Net sales means the revenue that a company generates from the sales after deducting the amount of sales allowance, sales returns, and sales discount
Explanation of Solution
M. company | ||
Cash budget for the month of May | ||
Particulars | Amount($) | |
Beginning cash balance | 9,000 | |
Add: Cash collection | 210,000 | |
Total cash Available | A | 219,000 |
Less: Cash disbursements | ||
For merchandise | 123,000 | |
For selling and administrative expenses | 72,000 | |
For equipment | 6,500 | |
Total cash disbursement | B | 201,500 |
Excess (deficiency) of cash | 17,500 | |
Financing: | ||
Borrowings | D | 20,000 |
Repayments | E | (14,500) |
Interest | F | (100) |
Ending cash balance | 22,900 | |
Hence, the expected ending cash balance is $22,900.
4.

To prepare: The income statement for May
Introduction: Net sales means the revenue that a company generates from the sales after deducting the amount of sales allowance, sales returns, and sales discount
Explanation of Solution
M. company | ||
Budget income statement | ||
For the month ended May 31 | ||
Particulars | Amount($) | |
Budgeted sales | 220,000 | |
Less: Cost of goods sold | 110,000 | |
Gross profit | 110,000 | |
Less: | ||
Selling and administrative expenses | 72,000 | |
Depreciation | 2,000 | |
Interest | 100 | |
Net income | 35,900 | |
Working notes:
Calculate the amount of cost of goods sold,
Hence, the net income of the M. Company is $15,900.
5.

To prepare: Balance sheet for May
Introduction: Net sales means the revenue that a company generates from the sales after deducting the amount of sales allowance, sales returns, and sales discount
Explanation of Solution
M. company | ||
Balance sheetAs at May 31 | ||
Particulars | Calculations | Amount($) |
Current assets | ||
Cash | 22,900 | |
Account receivable | 64,000 | |
Inventory | 40,000 | |
Fixed Assets | ||
Building and equipment | 211,500 | |
Total assets | 338,400 | |
Liability and stockholder’s equity | ||
Stockholder’s equity | ||
Capital stock | 180,000 | |
Retained earnings | 78,400 | |
Total stockholder’s equity | 258,400 | |
Accounts payable | 60,000 | |
Notes payable | 20,000 | |
Total liabilities and stockholders’ equity | 338,400 | |
Hence, the balance of the balance sheet is $338,400.
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Chapter 8 Solutions
Introduction To Managerial Accounting
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