Budgeted Income Statement and Balance Sheet As a preliminary to requesting budge

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.:

Factory output and sales for 20Y9 are expected to total 29,000 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:

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 $315,800 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 25,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $159,000 cash in May.

Required:

1. Prepare a budgeted income statement for 20Y9.

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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.

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Do not forget to include inventories of finished goods, work in process, and materials as assets in the balance sheet.

Calculate the ending retained earnings balance. Include the remaining assets, liabilities, and stockholders' equity.

Learning Objective 4, Learning Objective 5.

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Partially correct

Cash $118,600 Accounts Receivable 221,800 Finished Goods 46,600 Work in Process 31,100 Materials 51,000 Prepaid Expenses 3,800 Plant and Equipment 589,400 Accumulated Depreciation—Plant and Equipment $253,400 Accounts Payable 218,000 Common Stock, $10 par 250,000 Retained Earnings 340,900 $1,062,300 $1,062,300

Explanation / Answer

1.

2.

Working:

Cash = Beginning balance + Sales - Cost of goods sold + Depreciation expense - Operating expenses - Income tax - Dividends - Equipment purchases for cash = $118600 + 3480000 - 1343000 + 29000 - 866800 - 315800 - 100000 - 159000 = $843000

Dividends = 25000 x $1 x 4 = $100000

Retained earnings = Beginning balance + Net income - Dividends = $340900 + $954400 - $100000 = $1195300

Regina Soap Co. Budgeted Income Statement For the Year Ending December 31, 20Y9 Sales (29000 x $120) 3480000 Cost of goods sold: Direct materials (29000 x $30) 870000 Direct labor (29000 x $9.50) 275500 Factory overhead [$38000 + (29000 x $5.50)] 197500 Cost of goods sold 1343000 Gross profit 2137000 Operating expenses: Selling expenses: Sales salaries and commissions 539100 Advertising 87000 Miscellaneous selling expense 80000 Total selling expenses 706100 Administrative expenses: Office and officers salaries 68400 Supplies 32500 Miscellaneous administrative expense 59800 Total administrative expenses 160700 Total operating expenses 866800 Income before income tax 1270200 Income tax expense 315800 Net income 954400

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