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	$106,900
Accounts Receivable	208,500
Finished Goods	43,800
Work in Process	29,200
Materials	48,000
Prepaid Expenses	3,500
Plant and Equipment	494,900
Accumulated Depreciation—Plant and Equipment			$212,800
Accounts Payable			145,100
Common Stock, $10 par			350,000
Retained Earnings			226,900
	$934,800		$934,800

Factory output and sales for 20Y9 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, 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	$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 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 35,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $134,000 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			$

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

1.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
Sales			2750000
Cost of goods sold:
Direct materials		700000
Direct labor		212500
Factory overhead		157800
Cost of goods sold			1070300
Gross profit			1679700
Operating expenses:
Selling expenses:
Sales salaries and commissions	439800
Advertising	75000
Miscellaneous selling expense	56500
Total selling expenses		571300
Administrative expenses:
Office and officers salaries	234000
Supplies	28000
Miscellaneous administrative expense	39100
Total administrative expenses		301100
Total operating expenses			872400
Income before income tax			807300
Income tax expense			242200
Net income			565100

Workings:

Direct materials (25000 x $28)	700000
Direct labor (25000 x $8.5)	212500
Factory overheads (25000 x $5) + $25000 + $7800	157800
Sales salaries and commissions (25000 x $14)+$89800	439800
Miscellaneous selling expense (25000 x $2)+$6500	56500
Office and officers salaries (25000 x $7)+$59000	234000
Supplies (25000 x $1) + $3000	28000
Miscellaneous administrative expense (25000 x $1.5)+$1600	39100

2.

Regina Soap Co.
Budgeted Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash		423000
Accounts receivable		208500
Inventories:
Finished goods	43800
Work in process	29200
Materials	48000	121000
Prepaid expenses		3500
Total current assets			756000
Property, plant, and equipment:
Plant and Equipment		628900
Accumulated depreciation		-237800	391100
Total property, plant, and equipment
Total assets			1147100
Liabilities
Current liabilities:
Accounts payable			145100
Stockholders' Equity
Common stock		350000
Retained earnings		652000
Total stockholders' equity			1002000
Total liabilities and stockholders' equity			1147100

Workings:

Retained earnings:
Beginning balance	226900
Net income	565100
	792000
Less dividends	140000
(35000 x $1 x 4)
Ending balance	652000
Cash:
Beginning balance	106900
Collections from customers	2750000
Payment for expenses
Cost of goods sold (excluding depreciation)	-1045300
Operating expenses	-872400
Income taxes	-242200
Dividends	-140000
Purchase of equipment	-134000
Ending balance	423000