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 Mesa Publishing Co.:

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:

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.

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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.

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

Explanation / Answer

1.

2.

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

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

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