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, 20Y8, the following tentative trial balance as of December 31, 20Y7, is prepared by the Accounting Department of Mesa Publishing Co.:

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

Factory output and sales for 20Y8 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, 20Y8, 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 $30.00
Direct labor B.40
Factory overhead:    
Depreciation of plant and equipment  $ 4,000
Other factory overhead 1,400 4.30
Selling expenses:    
Sales salaries and commissions 12,800 13.50
Advertising 13,200
Miscellaneous selling expense 1,000 2.50
Administrative expenses:    
Office and officers salaries     7,800 7.00
Supplies 500 1.20
Miscellaneous administrative expense 400 2.40

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 20Y8 taxable income will be paid during 20Y8. 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.


  1. 1. Prepare a budgeted income statement for 20Y8.
  2. 2. Prepare a budgeted balance sheet as of December 31,20Y8, 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 M.


Prepare the budgeted income statement of Company M.

Company M
Budgeted Income Statement
For the Month Ending December 31, 20Y8
Particulars Amount ($) Amount ($)
Revenue from sales (3,800 × $120) 456,000
Less: Cost of goods sold
    Direct materials (3,800 × $30) 114,000
    Direct labor (3,800 × $8,40) 31,920

    Factory overhead

[(3,800 × $4.80) +$4,000+$1,400]

Cost of goods sold (169,560)
Gross profit 286,440
Operating expenses:
Selling expenses:

  Sales salaries and commissions

[(3,800 × $13...


To determine

To Prepare: The budgeted balance sheet of Company M.

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