Question

Budgeted Income Statement

Coral Seas Jewelry Company makes and sells costume jewelry. For the coming year, Coral Seas expects sales of $19,100,000 and cost of goods sold of $10,505,000. Advertising is a key part of Coral Seas' business strategy, and total marketing expense for the year is budgeted at $3,438,000. Total administrative expenses are expected to be $764,000. Coral Seas has no interest expense. Income taxes are paid at the rate of 40 percent of operating income.

Required:

1. Construct a budgeted income statement for Coral Seas Jewelry Company for the coming year.

Coral Seas Jewelry Company
Budgeted Income Statement
For the Coming Year
		$
Gross margin		$
Less:
	$
Operating income		$
		$

2. What if Coral Seas had interest payments of $573,000 during the year? What effect would that have on operating income? On income before taxes? On net income? If no effect, select "no impact" and enter "0".

Operating income		to	$
Income before taxes		to	$
Net income		to	$

Answer 1

Answer-1)-

CORAL SEAS JEWELARY COMPANY
BUDEGTED INCOME STATEMENT
FOR THE COMING YEAR
PARTICULARS	AMOUNT	AMOUNT
	$	$
Sales		19100000
Less- Cost of goods sold		10505000
Gross profit		8595000
Less- Operating expenses
Marketing expenses	3438000
Administrative expenses	764000
Total operating expenses		4202000
Operating income		4393000
Less- Interest		0
Income before taxes		4393000
Less- Income tax	$4393000*40%	1757200
Net Income		2635800

2)-

Operating Income	No Impact	0
Income before taxes		$3820000
Net Income		2292000

Explanation-

CORAL SEAS JEWELARY COMPANY
BUDEGTED INCOME STATEMENT
FOR THE COMING YEAR
PARTICULARS	AMOUNT	AMOUNT
	$	$
Sales		19100000
Less- Cost of goods sold		10505000
Gross profit		8595000
Less- Operating expenses
Marketing expenses	3438000
Administrative expenses	764000
Total operating expenses		4202000
Operating income		4393000
Less- Interest		573000
Income before taxes		3820000
Less- Income tax	$3820000*40%	1528000
Net Income		2292000