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	$119,300
Accounts Receivable	220,700
Finished Goods	46,300
Work in Process	30,900
Materials	50,800
Prepaid Expenses	3,800
Plant and Equipment	592,900
Accumulated Depreciation—Plant and Equipment			$254,900
Accounts Payable			198,800
Common Stock, $10 par			300,000
Retained Earnings			311,000
	$1,064,700		$1,064,700

Factory output and sales for 20Y9 are expected to total 29,000 units of product, which are to be sold at $110 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	_		$28
Direct labor	_		8.5
Factory overhead:
Depreciation of plant and equipment	$29,000		_
Other factory overhead	9,000		5
Selling expenses:
Sales salaries and commissions	104,100		14
Advertising	87,000		_
Miscellaneous selling expense	7,500		2
Administrative expenses:
Office and officers salaries	68,400		7
Supplies	3,500		1
Miscellaneous administrative expense	1,800		1.5

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 $281,000 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 30,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $160,000 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
Sales			$
Cost of goods sold:
Direct materials		$
Direct labor
Factory overhead
Cost of goods sold
Gross profit			$
Operating expenses:
Selling expenses:
Sales salaries and commissions	$
Advertising
Miscellaneous selling expense
Total selling expenses		$
Administrative expenses:
Office and officers salaries	$
Supplies
Miscellaneous administrative expense
Total administrative expenses
Total operating expenses
Income before income tax			$
Income tax expense
Net income			$

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

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
Cash		$
Accounts receivable
Inventories:
Finished goods	$
Work in process
Materials
Prepaid expenses
Total current assets			$
Property, plant, and equipment:
Plant and equipment		$
Accumulated depreciation
Total property, plant, and equipment
Total assets			$
Liabilities
Current liabilities:
Accounts payable			$
Stockholders' Equity
Common stock		$
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity			$

Answer 1

1. Prepare a budgeted income statement for 20Y9.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
Sales		3190000	$
Cost of goods sold:
Direct materials	812000	$
Direct labor	246500
Factory overhead	29000
Cost of goods sold	145000
Gross profit	1232500	1957500	$
Operating expenses:
Selling expenses:
Sales salaries and commissions	$104100
Advertising	87000
Miscellaneous selling expense	7500
Total selling expenses		$ 198600
Administrative expenses:
Office and officers salaries	$
Supplies
Miscellaneous administrative expense
Total administrative expenses		73700
Total operating expenses
Income before income tax		1685200	$
Income tax expense		-281000
Net income		1404200	$

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

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
Cash	119300	$
Accounts receivable	220700
Inventories:
Finished goods	$ 46300
Work in process	30900
Materials	50800
Prepaid expenses	3800
Total current assets		471800	$
Property, plant, and equipment:
Plant and equipment	752900	$
Accumulated depreciation	254900
Total property, plant, and equipment		498000
Total assets		969800	$
Liabilities
Current liabilities:
Accounts payable	198800	198800	$
Stockholders' Equity
Common stock	300000	$
Retained earnings	431000
Total stockholders’ equity		731000
Total liabilities and stockholders’ equity		929800	$