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	$103,500
Accounts Receivable	182,200
Finished Goods	38,300
Work in Process	25,500
Materials	41,900
Prepaid Expenses	3,100
Plant and Equipment	527,900
Accumulated Depreciation—Plant and Equipment			$227,000
Accounts Payable			134,700
Common Stock, $10 par			350,000
Retained Earnings			210,700
	$922,400		$922,400

Factory output and sales for 20Y9 are expected to total 25,000 units of product, which are to be sold at $100 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	_		$25
Direct labor	_		8
Factory overhead:
Depreciation of plant and equipment	$25,000		_
Other factory overhead	7,800		4.5
Selling expenses:
Sales salaries and commissions	89,800		12.5
Advertising	75,000		_
Miscellaneous selling expense	6,500		2
Administrative expenses:
Office and officers salaries	59,000		6.5
Supplies	3,000		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 $212,200 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 $143,000 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			$

Feedback

Use information from the expected sales, cost of goods manufactured and sold, and selling and administrative expenses.

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			$

Feedback

Do not forget to include inventories of finished goods, work in process, and materials as assets in the balance sheet.

Calculate the ending retained earnings balance. Include the remaining assets, 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
Units Sold	25,000.00
Sales			$      2,500,000
Cost of goods sold:
Direct materials		$       625,000
Direct labor		$       200,000
Factory overhead		$       145,300
Cost of goods sold			$         970,300
Gross profit			$      1,529,700
Operating expenses:
Selling expenses:
Sales salaries and commissions	$       402,300
Advertising	$         75,000
Miscellaneous selling expense	$         56,500
Total selling expenses		$       533,800
Administrative expenses:
Office and officers salaries	$       221,500
Supplies	$         28,000
Miscellaneous administrative expense	$         39,100
Total administrative expenses		$       288,600
Total operating expenses			$         822,400
Income before income tax			$         707,300
Income tax expense			$         212,200
Net income			$         495,100
2. Prepare a budgeted balance sheet as of December 31, 20Y9.
Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash (1)		$       340,600
Accounts receivable		$       182,200
Inventories:
Finished goods	$         38,300
Work in process	$         25,500
Materials	$         41,900	$       105,700
Prepaid expenses		$           3,100
Total current assets			$         631,600
Property, plant, and equipment:
Plant and equipment		$       670,900
Accumulated depreciation		$      (252,000)
Total property, plant, and equipment			$         418,900
Total assets			$      1,050,500
Liabilities
Current liabilities:
Accounts payable			$         134,700
Stockholders' Equity
Common stock		$       350,000
Retained earnings (2)		$       565,800
Total stockholders’ equity			$         915,800
Total liabilities and stockholders’ equity			$      1,050,500
1)
Cash balance, December 31, 20Y9:
Balance, January 1, 2011		$       103,500
Cash from operations:
Net income	$       495,100
Depreciation of plant and equipment	$         25,000	520,100
Less: Dividends to be paid in 2011  (35000 x 4  x1)	($140,000)
Plant and equipment to be acquired in 2011	$      (143,000)	-283,000
Balance, December 31, 2011		$       340,600
2)
Retained earnings balance, December 31, 20Y9:
Balance, January 1, 2011		$       210,700
Plus net income for 2011		$       495,100
		$       705,800
Less dividends to be declared in 20Y9		$      (140,000)
Balance, December 31, 2011		$       565,800