Question

Please provide correct answer for income tax on budgeted income statement.

Please provide correct answers for income taxes payable and retained earnings on the budgeted balance sheet. All other answers are correct. Thank you!

The management of Zigby Manufacturing prepared the following estimated balance sheet for March 2017:

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2017
Assets
Cash	$	57,000
Accounts receivable		464,000
Raw materials inventory		91,600
Finished goods inventory		380,480
Total current assets		993,080
Equipment, gross		634,000
Accumulated depreciation		(167,000	)
Equipment, net		467,000
Total assets	$	1,460,080
Liabilities and Equity
Accounts payable	$	206,300
Short-term notes payable		29,000
Total current liabilities		235,300
Long-term note payable		520,000
Total liabilities		755,300
Common stock		352,000
Retained earnings		352,780
Total stockholders’ equity		704,780
Total liabilities and equity	$	1,460,080

To prepare a master budget for April, May, and June of 2017, management gathers the following information:

Sales for March total 23,200 units. Forecasted sales in units are as follows: April, 23,200; May, 17,100; June, 21,900; and July, 23,200. Sales of 257,000 units are forecasted for the entire year. The product’s selling price is $25.00 per unit and its total product cost is $20.50 per unit.

Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,580 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,700 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.

Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 18,560 units, which complies with the policy.

Each finished unit requires 0.50 hours of direct labor at a rate of $13 per hour.

Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.40 per direct labor hour. Depreciation of $37,320 per month is treated as fixed factory overhead.

Sales representatives’ commissions are 5% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,700.

Monthly general and administrative expenses include $29,000 administrative salaries and 0.8% monthly interest on the long-term note payable.

The company expects 20% of sales to be for cash and the remaining 80% on credit. Receivables are collected in full in the month following the sale (none are collected in the month of the sale).

All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.

The minimum ending cash balance for all months is $99,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

Dividends of $27,000 are to be declared and paid in May.

No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter.

Equipment purchases of $147,000 are budgeted for the last day of June.

Required:
Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. (Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.):

1. Sales budget.
2. Production budget.
3. Raw materials budget.
4. Direct labor budget.
5. Factory overhead budget.
6. Selling expense budget.
7. General and administrative expense budget.
8. Cash budget.
9. Budgeted income statement for the entire second quarter (not for each month separately).
10. Budgeted balance sheet.

ZIGBY MANUFACTURING Budgeted Income Statement For Three Months Ended June 30, 2017 Sales $1,555,000 Cost of goods sold 1,275,100 Gross profit 279,900 Operating expenses Sales commissions $77,750 Sales salaries 14,100 General administrative salaries 87,000 Total operating expenses 178,850 Income before taxes 101,050 Income tax 35,237 Net income $65,813

ZIGBY MANUFACTURING Budgeted Balance Sheet June 30, 2017 Assets Cash $99,000 Accounts receivable 438,000 Raw materials inventory 114,000 Finished goods inventory 380,480 Total current assets $1,031,480 Equipment $781,000 Accumulated depreciation 278,960 Equipment, net 502,040 Total assets $1,533,520 Liabilities and Equity Liabilities Accounts payable $228,700 Income taxes payable ? Bank loan payable 18,760 Total current liabilities 247,460 Long-term note payable 520,000 Stockholders' Equity Common stock $352,000 Retained earnings ? Total Stockholders' Equity 704,780 Total Liabilities and Equity $1,472,240

Answer 1