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, 20Y4, the following tentative trial balance as of December 31, 20Y3, is prepared by the Accounting Department of Regina Soap Co.:

Cash	$111,000
Accounts Receivable	188,700
Finished Goods	39,600
Work in Process	26,400
Materials	43,400
Prepaid Expenses	3,200
Plant and Equipment	553,900
Accumulated Depreciation—Plant and Equipment			$238,200
Accounts Payable			186,400
Common Stock, $10 par			250,000
Retained Earnings			291,600
	$966,200		$966,200

Factory output and sales for 20Y4 are expected to total 26,000 units of product, which are to be sold at $100 per unit. The quantities and costs of the inventories at December 31, 20Y4, 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	_		$25
Direct labor	_		8
Factory overhead:
Depreciation of plant and equipment	$26,000		_
Other factory overhead	8,100		4.5
Selling expenses:
Sales salaries and commissions	93,300		12.5
Advertising	78,000		_
Miscellaneous selling expense	6,800		2
Administrative expenses:
Office and officers salaries	61,400		6.5
Supplies	3,100		1
Miscellaneous administrative expense	1,600		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 $220,700 on 20Y4 taxable income will be paid during 20Y4. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 25,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $150,000 cash in May.

Required:

1. Prepare a budgeted income statement for 20Y4.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y4
			$
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, 20Y4.

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y4
Assets
Current assets:
Inventories:
Total current assets
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, 20Y4
Sales revenue			2600000
Cost of goods sold:
Direct materials		650000
Direct labor		208000
Factory overheads		151100
Cost of goods sold			1009100
Gross profit			1590900
Operating expenses:
Selling expenses:
Sales salaries and commissions	418300
Advertising	78000
Miscellaneous selling expense	58800
Total selling expenses		555100
Administrative expenses:
Office and officers salaries	230400
Supplies	29100
Miscellaneous administrative expense	40600
Total administrative expenses		300100
Total operating expenses			855200
Income before income tax			735700
Income tax			220700
Net income			515000

Calculations:

Sales (26000 x $100)	2600000
Direct materials (26000 x $25)	650000
Direct labor (26000 x $8)	208000
Factory overheads (26000 x $4.50) + $26000 + $8100	151100
Sales salaries and commissions (26000 x $12.50)+$93300	418300
Miscellaneous selling expense (26000 x $2)+$6800	58800
Office and officers salaries (26000 x $6.50)+$61400	230400
Supplies (26000 x $1) + $3100	29100
Miscellaneous administrative expense (26000 x $1.50)+$1600	40600

2.

Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y4
Assets
Current assets:
Cash		402000
Accounts receivable		188700
Inventories:
Finished goods	39600
Work in process	26400
Materials	43400	109400
Prepaid expenses		3200
Total current assets			703300
Property, plant, and equipment:
Plant and Equipment		703900
Accumulated depreciation-Plant and Equipment		-264200	439700
Total assets			1143000
Liabilities
Current liabilities:
Accounts payable			186400
Stockholders' Equity
Common stock, $10 par		250000
Retained earnings		706600
Total stockholders' equity			956600
Total liabilities and stockholders' equity			1143000

Calculations:

Retained earnings:
Beginning balance	291600
Net income	515000
	806600
Less dividends (25000 x $1 x 4)	100000
Ending balance	706600
Cash:
Beginning balance	111000
Collections from customers	2600000
Payment for expenses
Cost of goods sold (excluding depreciation)	-983100
Operating expenses	-855200
Income taxes	-220700
Dividends	-100000
Purchase of equipment	-150000
Ending balance	402000
Plant and Equipment (553900 + 150000)	703900
Accumulated depreciation-Plant and Equipment	264200
(238200 + 26000)