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	$118,900
Accounts Receivable	217,600
Finished Goods	45,700
Work in Process	30,500
Materials	50,000
Prepaid Expenses	3,700
Plant and Equipment	542,200
Accumulated Depreciation—Plant and Equipment			$233,100
Accounts Payable			204,900
Common Stock, $10 par			250,000
Retained Earnings			320,600
	$1,008,600		$1,008,600

Factory output and sales for 20Y9 are expected to total 27,000 units of product, which are to be sold at $110 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	_		$28
Direct labor	_		8.5
Factory overhead:
Depreciation of plant and equipment	$27,000		_
Other factory overhead	8,400		5
Selling expenses:
Sales salaries and commissions	96,900		14
Advertising	81,000		_
Miscellaneous selling expense	7,000		2
Administrative expenses:
Office and officers salaries	63,700		7
Supplies	3,200		1
Miscellaneous administrative expense	1,700		1.5

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 $261,600 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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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

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1. Budgeted Income Statement
	Working			$
Sales	27000*110			2970000
Cost of goods sold:
Direct Material	27000*28		756000
Direct Labor	27000*8.5		229500
Factory Overhead	27000*5+(27000+8400)		170400
Cost of Goods Sold				1155900
Gross Profit	Sale-COGS			1814100
Operating Expenses:
Selling Expenses:
Salaries Sales & Commission	(27000*14)+96900	474900
Advertising	81000	81000
Misc Selling Expense	(27000*2)+7000	61000
Total Selling Expense			616900
Administrative Expense:
Office and officers salaries	(27000*7)+63700	252700
Supplies	(27000*1)+3200	30200
Misc Admin Expense	(27000*1.5)+1700	42200
Total Administrative Expense			325100
Total Operating Expense				942000
Income before Income Tax	Gross Profit-Total Operating Expense			872100
Income Tax Expense				261600
Net Income				610500
2. Budgeted Balance sheet
Current Assets:
Cash	Working-1		573400
Accounts Receivable			217600
Inventories:
Finished Goods		45700
Work in Process		30500
Material		50000	126200
Prepaid Expense			3700
Total Current Assets				920900
Property, plant, and equipment:
Plant and equipment	542200+146000		688200
Accumulated depreciation			-233100
Total property, plant, and equipment				455100
Total assets				1376000
Current liabilities:
Accounts payable				204900
Stockholders' Equity:
Common stock			250000
Retained earnings	320600-10000 Dividend+610500 Net Income		921100
Total stockholders’ equity				1171100
Total liabilities and stockholders’ equity				1376000

Working-1
Cash Balance, beginning	118900
Add Sale	2970000
Less: COGS	1155900
Less: Selling and Admin	942000
Less: Income Tax	261600
Less: Fixed Asst Purchase	146000
Less: Dividend Paid (2500*1*4)	10000
Cash Balance, closing	573400