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	$101,300
Accounts Receivable	190,400
Finished Goods	40,000
Work in Process	26,700
Materials	43,800
Prepaid Expenses	3,200
Plant and Equipment	514,600
Accumulated Depreciation—Plant and Equipment			$221,300
Accounts Payable			155,500
Common Stock, $10 par			300,000
Retained Earnings			243,200
	$920,000		$920,000

Factory output and sales for 20Y9 are expected to total 25,000 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	$25,000		_
Other factory overhead	7,800		5.5
Selling expenses:
Sales salaries and commissions	89,800		15
Advertising	75,000		_
Miscellaneous selling expense	6,500		2.5
Administrative expenses:
Office and officers salaries	59,000		7.5
Supplies	3,000		1
Miscellaneous administrative expense	1,600		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 $272,200 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 30,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $139,000 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			$fill in the blank 81f7aaf98fd7fbc_2
Cost of goods sold:
Direct materials		$fill in the blank 81f7aaf98fd7fbc_4
Direct labor		fill in the blank 81f7aaf98fd7fbc_6
Factory overhead		fill in the blank 81f7aaf98fd7fbc_8
Cost of goods sold			fill in the blank 81f7aaf98fd7fbc_9
Gross profit			$fill in the blank 81f7aaf98fd7fbc_10
Operating expenses:
Selling expenses:
Sales salaries and commissions	$fill in the blank 81f7aaf98fd7fbc_12
Advertising	fill in the blank 81f7aaf98fd7fbc_14
Miscellaneous selling expense	fill in the blank 81f7aaf98fd7fbc_16
Total selling expenses		$fill in the blank 81f7aaf98fd7fbc_17
Administrative expenses:
Office and officers salaries	$fill in the blank 81f7aaf98fd7fbc_19
Supplies	fill in the blank 81f7aaf98fd7fbc_21
Miscellaneous administrative expense	fill in the blank 81f7aaf98fd7fbc_23
Total administrative expenses		fill in the blank 81f7aaf98fd7fbc_24
Total operating expenses			fill in the blank 81f7aaf98fd7fbc_25
Income before income tax			$fill in the blank 81f7aaf98fd7fbc_26
Income tax expense			fill in the blank 81f7aaf98fd7fbc_28
Net income			$fill in the blank 81f7aaf98fd7fbc_30

2. Prepare a budgeted balance sheet as of December 31, 20Y9.

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
Cash		$fill in the blank a7c21afe0fdf008_2
Accounts receivable		fill in the blank a7c21afe0fdf008_4
Inventories:
Finished goods	$fill in the blank a7c21afe0fdf008_6
Work in process	fill in the blank a7c21afe0fdf008_8
Materials	fill in the blank a7c21afe0fdf008_10	fill in the blank a7c21afe0fdf008_11
Prepaid expenses		fill in the blank a7c21afe0fdf008_13
Total current assets			$fill in the blank a7c21afe0fdf008_14
Property, plant, and equipment:
Plant and equipment		$fill in the blank a7c21afe0fdf008_16
Accumulated depreciation		fill in the blank a7c21afe0fdf008_18
Total property, plant, and equipment			fill in the blank a7c21afe0fdf008_19
Total assets			$fill in the blank a7c21afe0fdf008_20
Liabilities
Current liabilities:
Accounts payable			$fill in the blank a7c21afe0fdf008_22
Stockholders' Equity
Common stock		$fill in the blank a7c21afe0fdf008_24
Retained earnings		fill in the blank a7c21afe0fdf008_26
Total stockholders’ equity			fill in the blank a7c21afe0fdf008_27
Total liabilities and stockholders’ equity			$fill in the blank a7c21afe0fdf008_28

Answer 1

1.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
Sales			3000000
Cost of goods sold:
Direct materials		750000
Direct labor		237500
Factory overhead		170300
Cost of goods sold			1157800
Gross profit			1842200
Operating expenses:
Selling expenses:
Sales salaries and commissions	464800
Advertising	75000
Miscellaneous selling expense	69000
Total selling expenses		608800
Administrative expenses:
Office and officers salaries	246500
Supplies	28000
Miscellaneous administrative expense	51600
Total administrative expenses		326100
Total operating expenses			934900
Income before income tax			907300
Income tax expense			272200
Net income			635100

Workings:

Sales (25000 x $120)	3000000
Direct materials (25000 x $30)	750000
Direct labor (25000 x $9.50)	237500
Factory overheads (25000 x $5.50) + $25000 + $7800	170300
Sales salaries and commissions (25000 x $15)+$89800	464800
Miscellaneous selling expense (25000 x $2.50)+$6500	69000
Office and officers salaries (25000 x $7.50)+$59000	246500
Supplies (25000 x $1) + $3000	28000
Miscellaneous administrative expense (25000 x $2)+$1600	51600

2.

Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash		502400
Accounts receivable		190400
Inventories:
Finished goods	40000
Work in process	26700
Materials	43800	110500
Prepaid expenses		3200
Total current assets			806500
Property, plant, and equipment:
Plant and Equipment		653600
Accumulated depreciation-Plant and Equipment		-246300	407300
Total assets			1213800
Liabilities
Current liabilities:
Accounts payable			155500
Stockholders' Equity
Common stock		300000
Retained earnings		758300
Total stockholders' equity			1058300
Total liabilities and stockholders' equity			1213800

Workings:

Plant and equipment = $514600 + $139000 = $653600

Accumulated depreciation-Plant and Equipment = $221300 + $25000 = $246300

Retained earnings:
Beginning balance	243200
Net income	635100
	878300
Less dividends (30000 x $1 x 4)	120000
Ending balance	758300
Cash:
Beginning balance	101300
Collections from customers	3000000
Payment for expenses
Cost of goods sold (excluding depreciation)	-1132800
Operating expenses	-934900
Income taxes	-272200
Dividends	-120000
Purchase of equipment	-139000
Ending balance	502400