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	$113,000
Accounts Receivable	215,800
Finished Goods	45,300
Work in Process	30,200
Materials	49,600
Prepaid Expenses	3,700
Plant and Equipment	542,400
Accumulated Depreciation—Plant and Equipment			$233,200
Accounts Payable			201,600
Common Stock, $10 par			250,000
Retained Earnings			315,200
	$1,000,000		$1,000,000

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 25,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $146,000 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			$

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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			$

Answer 1

REGINA SOAP Co. Budgeted income statement For the year ended December 31, 20Y9
Sales (27000*120)		3240000
Cost of goods sold:
Direct materials (27000*30)	810000
Direct labor (27000*9.5)	256500
Factory overhead ((27000*5.5)+27000+8400)	183900
Cost of goods sold		1250400
Gross profit		1989600
Operating expenses:
Selling expenses:
Sales salaries and commissions (27000*15)+96900	501900
Advertising	81000
Miscellaneous selling expenses ((27000*2.5)+7000)	74500
Total selling expenses	657400
Administrative expenses:
Office and officer salaries ((27000*7.5)+63700)	266200
Supplies ((27000*1)+3200)	30200
Miscellaneous administrative expenses ((27000*2)+1700)	55700
Total administrative expenses	352100
Total operating expenses		1009500
Income before income tax		980100
Income tax expenses		294000
Net income		$686100

REGINA SOAP Co. Budgeted balance sheet December 31, 20Y9
Assets
Current assets
Cash (113000+686100+27000-(25000*1*4)-146000)		580100
Accounts receivable		215800
Inventories:
Finished goods	45300
Work in process	30200
Materials	49600	125100
Prepaid expenses		3700
Total current assets			924700
Property plant and equipment
Plant and equipment (542400+146000)		688400
Less accumulated depreciation (233200+27000)		260200	428200
Total assets			$1352900
liabilities
Current liabilities:
Accounts payable			201600
Stockholders’ equity
Common stock		250000
Retained earnings (315200+686100-(25000*1*4))		901300	1151300
Total stockholders’ equity			$1352900