Stillwater Video Company, Inc., produces and markets two popular video games, Hi

Question

Stillwater Video Company, Inc., produces and markets two popular video games, High Range and Star Boundary. The closing account balances on the company’s balance sheet for last year are as follows: Cash, $18,735; Accounts Receivable, $19,900; Materials Inventory, $18,510; Work in Process Inventory, $24,680; Finished Goods Inventory, $21,940; Prepaid Expenses, $3,420; Plant and Equipment, $262,800; Accumulated Depreciation–Plant and Equipment, $55,845; Other Assets, $9,480; Accounts Payable, $52,640; Mortgage Payable, $70,000; Common Stock, $90,000; and Retained Earnings, $110,980. Operating budgets for the first quarter of the coming year show the following estimated costs: direct materials purchases, $58,100; direct materials usage, $62,400; direct labor expense, $42,880; overhead, $51,910; selling expenses, $35,820; general and administrative expenses, $60,240; cost of goods manufactured, $163,990; and cost of goods sold, $165,440. Estimated ending cash balances are as follows: January, $34,610; February, $60,190; and March, $54,802. The company will have no capital expenditures during the quarter. Sales are projected to be $125,200 in January, $105,100 in February, and $112,600 in March. Accounts receivable are expected to double during the quarter, and accounts payable are expected to decrease by 20 percent. Mortgage payments for the quarter will total $6,000, of which $2,000 will be interest expense. Prepaid expenses are expected to go up by $20,000, and other assets are projected to increase by 50 percent over the budget period. Depreciation for plant and equipment (already included in the overhead budget) averages 5 percent of total plant and equipment per year. Federal income taxes (34 percent of profits) are payable in April. The company pays no dividends.

Required

1. Prepare a budgeted income statement for the quarter ended March 31.

2. Prepare a budgeted balance sheet as of March 31.

Explanation / Answer

Answer to Question 2

Answer to Question 1 BUDGETED INCOME STATEMENT FOR THE QUARTER Sales 342900 Less: Cost of goods sold 165440 Gross Profit 177460 Less: General and Admn expenses 60240 Selling expenses 35820 96060 Operating Profit 81400 Interest expense 2000 Income before tax 79400 Income tax 26996 Net Income 52404 RETAINED EARNINGS Opening balance 110980 Net Income 52404 Closing balance 163384

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