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, 2017, the following tentative trial balance as of December 31, 2016, is prepared by the Accounting Department of Webster Publishing Co.:

Cash	$106,000
Accounts Receivable	194,000
Finished Goods	40,700
Work in Process	27,200
Materials	44,600
Prepaid Expenses	3,300
Plant and Equipment	537,400
Accumulated Depreciation—Plant and Equipment			$231,100
Accounts Payable			145,100
Common Stock, $10 par			350,000
Retained Earnings			227,000
	$953,200		$953,200

Factory output and sales for 2017 are expected to total 26,000 units of product, which are to be sold at $120 per unit. The quantities and costs of the inventories at December 31, 2017, 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	$26,000		_
Other factory overhead	8,100		5.5
Selling expenses:
Sales salaries and commissions	93,300		15
Advertising	78,000		_
Miscellaneous selling expense	6,800		2.5
Administrative expenses:
Office and officers salaries	61,400		7.5
Supplies	3,100		1
Miscellaneous administrative expense	1,600		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 $283,100 on 2017 taxable income will be paid during 2017. 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 $145,000 cash in May.

Required:

• Prepare a budgeted income statement for 2017.
• Prepare a budgeted balance sheet as of December 31, 2017.

1. Prepare a budgeted income statement for 2017.

Webster Publishing Co.
Budgeted Income Statement
For the Year Ending December 31, 2017
			$
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, 2017.

Webster Publishing Co. Budgeted Balance Sheet December 31, 2017
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).

Webster Publishing Co.
Budgeted Income Statement
For the Year Ending December 31, 2017
Sales (26000 x $120)			3120000
Cost of goods sold:
Direct materials (26000 x $30)		780000
Direct labor (26000 x $9.50)		247000
Factory overhead [$34100 + (26000 x $5.5)]		177100
Cost of goods sold			1204100
Gross profit			1915900
Operating expenses:
Selling expenses:
Sales salaries and commissions [$93300 + (26000 x $15)]	483300
Advertising	78000
Miscellaneous selling expense [$6800 + (26000 x $2.5)]	71800
Total selling expenses		633100
Administrative expenses:
Office and officers salaries [$61400 + (26000 x $7.5)]	256400
Supplies [$3100 + (26000 x $1)]	29100
Miscellaneous administrative expense [$1600 + (26000 x $2)]	53600
Total administrative expenses		339100
Total operating expenses			972200
Income before income tax			943700
Income tax expense			283100
Net income $			660600

(2).

Webster Publishing Co.
Budgeted Balance Sheet
December 31, 2017
Assets:
Current assets:
Cash		507600
Accounts receivable		194000
Inventories:
Finished goods	40700
Work in process	27200
Materials	44600	112500
Prepaid expenses		3300
Total current assets			817400
Property, plant, and equipment
Plant and equipment ($537400 + $145000)		682400
Accumulated depreciation ($231100 + $26000)		-257100
Total property, plant, and equipment			425300
Total assets			1242700
Liabilities:
Current liabilities:
Accounts payable			145100
Stockholders' Equity
Common stock		350000
Retained earnings		747600
Total stockholders' equity			1097600
Total liabilities and stockholders' equity			1242700

Working Note :

Cash = Beginning balance + Sales - Cost of goods sold + Depreciation expense - Operating expenses - Income tax - Dividends - Equipment purchases for cash

= $106000 + 3120000 - 1204100 + 26000 - 972200 - 283100 - 140000 - 145000 = $507600.

Dividends = 35000 x $1 x 4 = $140000

Retained earnings = Beginning balance + Net income - Dividends

= $227000 + $660600 - $140000

= $747600

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