Question

Budgeted Income Statement and Balance Sheet

As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative trial balance as of December 31, 20Y8, is prepared by the Accounting Department of Regina Soap Co.:

Cash	$112,900
Accounts Receivable	198,700
Finished Goods	41,700
Work in Process	27,800
Materials	45,700
Prepaid Expenses	3,400
Plant and Equipment	584,800
Accumulated Depreciation—Plant and Equipment			$251,500
Accounts Payable			161,300
Common Stock, $10 par			350,000
Retained Earnings			252,200
	$1,015,000		$1,015,000

Factory output and sales for 20Y9 are expected to total 27,000 units of product, which are to be sold at $120 per unit. The quantities and costs of the inventories at December 31, 20Y9, are expected to remain unchanged from the balances at the beginning of the year.

Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:

	Estimated Costs and Expenses
	Fixed (Total for Year)		Variable (Per Unit Sold)
Cost of goods manufactured and sold:
Direct materials	_		$30
Direct labor	_		9.5
Factory overhead:
Depreciation of plant and equipment	$27,000		_
Other factory overhead	8,400		5.5
Selling expenses:
Sales salaries and commissions	96,900		15
Advertising	81,000		_
Miscellaneous selling expense	7,000		2.5
Administrative expenses:
Office and officers salaries	63,700		7.5
Supplies	3,200		1
Miscellaneous administrative expense	1,700		2

Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $294,000 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 35,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $158,000 cash in May.

Required:

1. Prepare a budgeted income statement for 20Y9.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
			$
Cost of goods sold:
		$
Cost of goods sold
Gross profit			$
Operating expenses:
Selling expenses:
	$
Total selling expenses		$
Administrative expenses:
	$
Total administrative expenses
Total operating expenses
Income before income tax			$
			$

2. Prepare a budgeted balance sheet as of December 31, 20Y9.

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
		$
Inventories:
	$
Total current assets			$
Property, plant, and equipment:
		$
Total property, plant, and equipment
Total assets			$
Liabilities
Current liabilities:
			$
Stockholders' Equity
		$
Total stockholders’ equity
Total liabilities and stockholders’ equity			$

Answer 1

1.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
Sales revenue			3240000
Cost of goods sold:
Direct materials		810000
Direct labor		256500
Factory overheads		183900
Cost of goods sold			1250400
Gross profit			1989600
Operating expenses:
Selling expenses:
Sales salaries and commissions	501900
Advertising	81000
Miscellaneous selling expense	74500
Total selling expenses		657400
Administrative expenses:
Office and officers salaries	266200
Supplies	30200
Miscellaneous administrative expense	55700
Total administrative expenses		352100
Total operating expenses			1009500
Income before income tax			980100
Income tax			294000
Net income			686100

Calculations:

Sales revenue (27000 x $120)	3240000
Direct materials (27000 x $30)	810000
Direct labor (27000 x $9.50)	256500
Factory overheads (27000 x $5.50) + $8400 + $27000	183900
Sales salaries and commissions (27000 x $15)+$96900	501900
Miscellaneous selling expense (27000 x $2.50)+$7000	74500
Office and officers salaries (27000 x $7.50)+$63700	266200
Supplies (27000 x $1) + $3200	30200
Miscellaneous administrative expense (27000 x $2)+$1700	55700

2.

Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash		528000
Accounts receivable		198700
Inventories:
Finished goods	41700
Work in process	27800
Materials	45700	115200
Prepaid expenses		3400
Total current assets			845300
Property, plant, and equipment:
Plant and Equipment		742800
Accumulated depreciation-Plant and Equipment		-278500
Total property, plant, and equipment			464300
Total assets			1309600
Liabilities
Current liabilities:
Accounts payable			161300
Stockholders' Equity
Common stock, $10 par		350000
Retained earnings		798300
Total stockholders' equity			1148300
Total liabilities and stockholders' equity			1309600

Calculations:

Retained earnings:
Beginning balance	252200
Add Net income	686100
	938300
Less dividends (35000 x $1 x 4)	-140000
Ending balance	798300
Cash:
Beginning balance	112900
Collections from customers	3240000
Payment for expenses
Cost of goods sold (excluding depreciation)	-1223400
Operating expenses	-1009500
Income taxes	-294000
Dividends	-140000
Purchase of equipment	-158000
Ending balance	528000