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	$118,600
Accounts Receivable	221,800
Finished Goods	46,600
Work in Process	31,100
Materials	51,000
Prepaid Expenses	3,800
Plant and Equipment	589,400
Accumulated Depreciation—Plant and Equipment			$253,400
Accounts Payable			218,000
Common Stock, $10 par			250,000
Retained Earnings			340,900
	$1,062,300		$1,062,300

Factory output and sales for 20Y9 are expected to total 29,000 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	$29,000		_
Other factory overhead	9,000		5.5
Selling expenses:
Sales salaries and commissions	104,100		15
Advertising	87,000		_
Miscellaneous selling expense	7,500		2.5
Administrative expenses:
Office and officers salaries	68,400		7.5
Supplies	3,500		1
Miscellaneous administrative expense	1,800		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 $315,800 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 $159,000 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.

Learning Objective 4, Learning Objective 5.

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.

Learning Objective 4, Learning Objective 5.

Feedback

Partially correct

Answer 1

1.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
Sales (29000 x $120)			3480000
Cost of goods sold:
Direct materials (29000 x $30)		870000
Direct labor (29000 x $9.50)		275500
Factory overhead [$38000 + (29000 x $5.50)]		197500
Cost of goods sold			1343000
Gross profit			2137000
Operating expenses:
Selling expenses:
Sales salaries and commissions	539100
Advertising	87000
Miscellaneous selling expense	80000
Total selling expenses		706100
Administrative expenses:
Office and officers salaries	68400
Supplies	32500
Miscellaneous administrative expense	59800
Total administrative expenses		160700
Total operating expenses			866800
Income before income tax			1270200
Income tax expense			315800
Net income			954400

2.

Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash		843000
Accounts receivable		221800
Inventories:
Finished goods	46600
Work in process	31100
Materials	51000	128700
Prepaid expenses		3800
Total current assets			1197300
Property, plant, and equipment
Plant and equipment ($589400 + $159000)		748400
Accumulated depreciation ($253400 + $29000)		-282400
Total property, plant, and equipment			466000
Total assets			1663300
Liabilities
Current liabilities:
Accounts payable			218000
Stockholders' Equity
Common stock		250000
Retained earnings		1195300
Total stockholders' equity			1445300
Total liabilities and stockholders' equity			1663300

Working:

Cash = Beginning balance + Sales - Cost of goods sold + Depreciation expense - Operating expenses - Income tax - Dividends - Equipment purchases for cash = $118600 + 3480000 - 1343000 + 29000 - 866800 - 315800 - 100000 - 159000 = $843000

Dividends = 25000 x $1 x 4 = $100000

Retained earnings = Beginning balance + Net income - Dividends = $340900 + $954400 - $100000 = $1195300