27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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, 20Y4, the following tentative trial balance as of December 31, 20Y3, is prepared by the Accounting Department of Regina Soap Co.:

Cash  $ 85,000  
Accounts Receivable  125,600  
Finished Goods  69,300  
Work in Process  32,500  
Materials  48,900  
Prepaid Expenses  2,600  
Plant and Equipment  325,000  
Accumulated Depreciation—Plant and Equipment   $156,200
Accounts Payable   62,000
Common Stock, $ 10 par   180,000
Retained Earnings   290,700
  $688,900 $688,900

 Factory output and sales for 20Y4 are expected to total 200,000 units of product, which are to be sold at $5.00 per unit. The quantities and costs of the inventories at December 31, 20Y4, 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 Variable
  (Total for Year) (Per Unit Sold)
Cost of goods manufactured and sold:    
Direct materials $1.10
Direct labor 0.65
Factory overhead:    
Depreciation of plant and equipment  $40,000
Other factory overhead 12,000 0.40
Selling expenses:    
Sales salaries and commissions 46,000 0.45
Advertising 64,000
Miscellaneous selling expense  6,000 0.25
Administrative expenses:    
Office and officers salaries  72,400 0.12
Supplies  5,000 0.10
Miscellaneous administrative expense  4.000 0.05

 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 $30,000 on 20Y4 taxable income will be paid during 20Y4. Regular quarterly cash dividends of $0.15 per share are expected to be declared and paid in March, June, September, and December on 18,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $75,000 cash in May.


  1. 1. Prepare a budgeted income statement for 20Y4.
  2. 2. Prepare a budgeted balance sheet as of December 31, 20Y4, with supporting calculations.


To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

To Prepare: The budgeted income statement of Company R.


Prepare the budgeted income statement of Company R.

Company R
Budgeted Income Statement
For the Month Ending December 31, 20Y4
Particulars Amount ($) Amount ($)
Revenue from sales (200,000 × $5) 1,000,000
Less: Cost of goods sold
    Direct materials (200,000 × $1.10) 220,000
    Direct labor (200,000 × $0.65) 130,000

    Factory overhead

[(200,000 × $0.40) +$40,000+$12,000]

Cost of goods sold (482,000)
Gross profit 518,000
Operating expenses:
Selling expenses: 115,500

  Sales salaries and commissions

[(200,000 × $0...


To determine

To Prepare: The budgeted balance sheet of Company R.

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