Chapter 21, Problem 21.5BPR

1.

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.

Explanation of Solution

Prepare the budgeted income statement of Company M.

Company M
Budgeted Income Statement
For the Month Ending December 31, 2017
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]	23,640
Cost of goods sold		(169,560)
Gross profit		286,440
Operating expenses:
Selling expenses:
Sales salaries and commissions [(3,800 × $13.50) + 12,800]	64,100
Advertising	13,200
Miscellaneous selling expense [(3,800 × $2.50) + 1,000]	10,500
Total selling expenses		87,800
Administrative expenses:
Office and officers’ salaries [(3,800 × $7.00) + 7,800]	34,400
Supplies [(3,800 × $1.20) + 500]	5,060
Miscellaneous administrative expense [(3,800 × $2.40) + $400]	9,520
Total administrative expenses		48,980
Total operating expenses		(136,780)
Income before income tax		149,660
Income tax expense (30%)		(35,000)
Net Income	114,660

Table (1)

2.

To determine

To Prepare: The budgeted balance sheet of Company M.

Explanation of Solution

Prepare the budgeted balance sheet of Company M.

M Company Budgeted Balance Sheet December 31, 2017
Particulars	Amount ($)	Amount ($)	Amount ($)
Assets
Current assets:
Cash (Refer Table 3)		106,660
Accounts receivable		23,800
Inventories:
Finished goods	16,900
Work in process	4,200
Materials	6,400	27,500
Prepaid expenses		600
Total current assets			158,560
Property, plant, and equipment:
Plant and equipment		104,000 (1)
Less: Accumulated depreciation		36,000 (2)	68,000
Total Assets			226,560
Liabilities
Current liabilities:
Accounts payable			14,800
Total Liabilities			14,800
Stockholders’ Equity
Common stock		30,000
Retained earnings (Refer Table 4)		181,760
Total Stockholders’ Equity			211,760
Total liabilities and stockholders’ equity			226,560

Table (2)

Working Note:

Calculate the cash balance.

Particulars	Amount ($)	Amount ($)
Balance, January 1, 2017		26,000
Add: Cash from operations
Net income	114,660
Depreciation of plant and equipment	4,000	118,660
Less: Dividends to be paid in 2017          [$20,000 × $0.20 × 4 qtrs.]	16,000
Plant and equipment to be acquired in 2017	22,000	(38,000)
Cash balance, December 31, 2017		106,660

Table (3)

Calculate the amount of plant and equipment.

$\begin{array}{c}\text{Amount of plant and equipment}\text{=}\text{\$82,000}\text{+}\text{\$22,000}\\ \text{=}\text{\$104,000}\end{array}$ (1)

Calculate the amount of accumulated depreciation.

$\begin{array}{c}\text{Amount of accumulated depreciation}\text{=}\text{\$32,000}\text{+}\text{\$4,000}\\ \text{=}\text{\$36,000}\end{array}$ (2)

Calculate the retained earnings balance.

Particulars	Amount ($)
Balance, January 1, 2017	83,100
Add: Net income	114,660
Less: Dividends to be paid in 2017          [$20,000 × $0.20 × 4 qtrs.]	(16,000)
Balance, December 31, 2017	181,760

Table (4)