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, 2017, the following tentative trial balance as of December 31, 2016, is prepared by the Accounting Department of Webster Publishing Co.:

Cash	$105,800
Accounts Receivable	200,000
Finished Goods	42,000
Work in Process	28,000
Materials	46,000
Prepaid Expenses	3,400
Plant and Equipment	483,500
Accumulated Depreciation—Plant and Equipment			$207,900
Accounts Payable			136,800
Common Stock, $10 par			350,000
Retained Earnings			214,000
	$908,700		$908,700

Factory output and sales for 2017 are expected to total 25,000 units of product, which are to be sold at $110 per unit. The quantities and costs of the inventories at December 31, 2017, 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	$25,000		_
Other factory overhead	7,800		5
Selling expenses:
Sales salaries and commissions	89,800		14
Advertising	75,000		_
Miscellaneous selling expense	6,500		2
Administrative expenses:
Office and officers salaries	59,000		7
Supplies	3,000		1
Miscellaneous administrative expense	1,600		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 $242,200 on 2017 taxable income will be paid during 2017. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 35,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $131,000 cash in May.

Required:

Prepare a budgeted income statement for 2017.

Prepare a budgeted balance sheet as of December 31, 2017.

Answer 1

Budgeted Income Statement 2017
Particular	Amount	Amount	Amount
Sales		$2,750,000.00	25000X$110
Less: Cost of Goods manifactured and sold
Direct Materials	$700,000.00		25000X$28
Direct labor	$212,500.00		25000X$8.5
Factory Overhead	$157,800.00	$1,070,300.00	25000+7800+(25000*5)
Gross Profit		$1,679,700.00
Operating Expenses
Less: Selling Expenses
Sales Salaries and commission	$439,800.00		89800+(25000*$14)
Advertising	$75,000.00		75000
Miscellaneous Selling	$56,500.00	$571,300.00	6500+(25000*$2)
Less: Administrative Expenses
Office and officers salaries	$234,000.00		59000+(25000*$7)
Supplies	$28,000.00		3000+(25000*$1)
Misc.	$39,100.00	$301,100.00	1600+(25000*$1.5)
Income Before Tax		$807,300.00
Less: Tax		$242,200.00
Net Operating Income		$565,100.00

Budgeted Balance Sheet as on 31 December 2017
Assets
Current Assets
Inventories ($42000+28000+$46000)	$116,000
Accounts receivable	$200,000
Prepaid Expenses	$3,400
Cash (Note-1)	$424,900	$744,300
Non Current Assets
Plant and Equipment ( Note-2)	$381,600	$381,600
		$1,125,900
Liabilities
Current Liabilities
Accounts Payable	$136,800	$136,800
StockHolders Equity
Equity Capital	$350,000
Opening Reserves	$214,000
Add:Net profit during year	$565,100
Less: Doividend Paid ($1X35000X4)	$140,000	$989,100
		$1,125,900

Note 1
Opening Cash Balance	$105,800
Add:Net profit	$565,100
Add:Depreciation	$25,000
Less:Fixed Asset additions	-$131,000
Less; Dividend Paid	-$140,000
Total	$424,900
Note 2
Movement of Fixed Assets
Opening Gross Block	$483,500
Opening Accumulated Depreciation	-$207,900
Additions during the year	$131,000
Depreciation during the year	-$25,000
Net Block-Closing	$381,600