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	$103,100
Accounts Receivable	177,300
Finished Goods	37,200
Work in Process	24,800
Materials	40,800
Prepaid Expenses	3,000
Plant and Equipment	486,600
Accumulated Depreciation—Plant and Equipment			$209,200
Accounts Payable			141,800
Common Stock, $10 par			300,000
Retained Earnings			221,800
	$872,800		$872,800

Factory output and sales for 20Y9 are expected to total 24,000 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	$24,000		_
Other factory overhead	7,400		5.5
Selling expenses:
Sales salaries and commissions	86,200		15
Advertising	72,000		_
Miscellaneous selling expense	6,200		2.5
Administrative expenses:
Office and officers salaries	56,600		7.5
Supplies	2,900		1
Miscellaneous administrative expense	1,500		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 $261,400 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 $131,000 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
			$
Cost of goods sold:
		$
Cost of goods sold
Gross profit			$
Operating expenses:
Selling expenses:
	$
Total selling expenses		$
Administrative expenses:
	$
Total administrative expenses
Total operating expenses
Income before income tax			$
			$

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

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
		$
Inventories:
	$
Total current assets			$
Property, plant, and equipment:
		$
Total property, plant, and equipment
Total assets			$
Liabilities
Current liabilities:
			$
Stockholders' Equity
		$
Total stockholders’ equity
Total liabilities and stockholders’ equity			$

Answer 1

1.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y4
Sales revenue			2880000
Cost of goods sold:
Direct materials		720000
Direct labor		228000
Factory overheads		163400
Cost of goods sold			1111400
Gross profit			1768600
Operating expenses:
Selling expenses:
Sales salaries and commissions	446200
Advertising	72000
Miscellaneous selling expense	66200
Total selling expenses		584400
Administrative expenses:
Office and officers salaries	236600
Supplies	26900
Miscellaneous administrative expense	49500
Total administrative expenses		313000
Total operating expenses			897400
Income before income tax			871200
Income tax			261400
Net income			609800

Workings:

Direct materials (24000 x $30)	720000
Direct labor (24000 x $9.5)	228000
Factory overheads (24000 x $5.5) + $24000 + $7400	163400
Sales salaries and commissions (24000 x $15)+$86200	446200
Miscellaneous selling expense (24000 x $2.5)+$6200	66200
Office and officers salaries (24000 x $7.5)+$56600	236600
Supplies (24000 x $1) + $2900	26900
Miscellaneous administrative expense (24000 x $2)+$1500	49500

2.

Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y4
Assets
Current assets:
Cash		485900
Accounts receivable		177300
Inventories:
Finished goods	37200
Work in process	24800
Materials	40800	102800
Prepaid expenses		3000
Total current assets			769000
Property, plant, and equipment:
Plant and Equipment		617600
Accumulated depreciation-Plant and Equipment		-233200	384400
Total assets			1153400
Liabilities
Current liabilities:
Accounts payable			141800
Stockholders' Equity
Common stock, $10 par		300000
Retained earnings		711600
Total stockholders' equity			1011600
Total liabilities and stockholders' equity			1153400

Workings:

Retained earnings:
Beginning balance	221800
Net income	609800
	831600
Less dividends	120000
(30000 x $1 x 4)
Ending balance	711600
Cash:
Beginning balance	103100
Collections from customers	2880000
Payment for expenses
Cost of goods sold (excluding depreciation)	-1087400
Operating expenses	-897400
Income taxes	-261400
Dividends	-120000
Purchase of fixed assets	-131000
Ending balance	485900