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 Mesa Publishing Co.:

Cash	$ 26,000
Accounts Receivable	23,800
Finished Goods	16,900
Work in Process	4,200
Materials	6,400
Prepaid Expenses	600
Plant and Equipment	82,000
Accumulated Depreciation—Plant and Equipment			$ 32,000
Accounts Payable			14,800
Common Stock, $1.50 par			30,000
Retained Earnings			83,100
	$159,900		$159,900

Factory output and sales for 20Y9 are expected to total 3,800 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	_		$30.00
Direct labor	_		8.40
Factory overhead:
Depreciation of plant and equipment	$ 4,000		_
Other factory overhead	1,400		4.80
Selling expenses:
Sales salaries and commissions	12,800		13.50
Advertising	13,200		_
Miscellaneous selling expense	1,000		2.50
Administrative expenses:
Office and officers salaries	7,800		7.00
Supplies	500		1.20
Miscellaneous administrative expense	400		2.40

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 $35,000 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $0.20 per share are expected to be declared and paid in March, June, September, and December on 20,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $22,000 cash in May.

Required:

1. Prepare a budgeted income statement for 20Y9.

Mesa Publishing 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			$

Feedback

Use information from the expected sales, cost of goods manufactured and sold, and selling and administrative expenses.

Learning Objective 4, Learning Objective 5.

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

Mesa Publishing 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

1.

Mesa Publishing Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
Sales (3800 x $120)			456000
Cost of goods sold:
Direct materials (3800 x $30)		114000
Direct labor (3800 x $8.40)		31920
Factory overhead [$5400 + (3800 x $4.80)]		23640
Cost of goods sold			169560
Gross profit			286440
Operating expenses:
Selling expenses:
Sales salaries and commissions	64100
Advertising	13200
Miscellaneous selling expense	10500
Total selling expenses		87800
Administrative expenses:
Office and officers salaries	34400
Supplies	5060
Miscellaneous administrative expense	9520
Total administrative expenses		48980
Total operating expenses			136780
Income before income tax			149660
Income tax expense			35000
Net income			114660

2.

Mesa Publishing Co.
Budgeted Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash		106660
Accounts receivable		23800
Inventories:
Finished goods	16900
Work in process	4200
Materials	6400	27500
Prepaid expenses		600
Total current assets			158560
Property, plant, and equipment
Plant and equipment ($82000 + $22000)		104000
Accumulated depreciation ($32000 + $4000)		-36000
Total property, plant, and equipment			68000
Total assets			226560
Liabilities
Current liabilities:
Accounts payable			14800
Stockholders' Equity
Common stock		30000
Retained earnings		181760
Total stockholders' equity			211760
Total liabilities and stockholders' equity			226560

Working:

Cash = Beginning balance + Sales - Cost of goods sold + Depreciation expense - Operating expenses - Income tax - Dividends - Equipment purchases for cash = $26000 + 456000 - 169560 + 4000 - 136780 - 35000 - 16000 - 22000 = $106660.

Dividends = 20000 x $0.20 x 4 = $16000

Retained earnings = Beginning balance + Net income - Dividends = $83100 + $114660 - $16000 = $181760