40PGA - Horngren'S Financial And Managerial Accounting

Question

Preparing a financial budget—budgeted income statement and balance sheet 

Bradley Company has the following post-closing trial balance on December 31, 2018:

 

The company’s accounting department has gathered the following budgeting information for the first quarter of 2019: 

Budgeted total sales, all on account                                   $ 305,000                            Budgeted direct materials to be purchased and used           32,000                               Budgeted direct labor cost                                                       12,500                    Budgeted manufacturing overhead costs: 

Variable manufacturing overhead                                             2,100                  Depreciation                                                                                1,300                  Insurance and property taxes                                                    1,350                        Budgeted cost of goods sold                                                   72,000                      Budgeted selling and administrative expenses: 

Salaries expense                                                                          7,000                               Rent expense                                                                                2,000                    Insurance expense                                                                        1,100 Depreciation expense                                                                     550                   Supplies expense                                                                         15,250                  Budgeted cash receipts from customers                                 263,500              Budgeted income tax expense                                                    41,000                  Budgeted purchase and payment for capital expenditures                           (additional equipment)                                                                 43,000 

Additional information: 

a. Direct materials purchases are paid 70% in the quarter purchased and 30% in the next quarter. 

b. Direct labor, manufacturing overhead, selling and administrative costs, and income tax expense are paid in the quarter incurred. 

c. Accounts payable at December 31, 2018 are paid in the first quarter of 2019. Requirements 

1. Prepare Bradley Company’s budgeted income statement for the first quarter of 2019. 

2. Prepare Bradley Company’s budgeted balance sheet as of March 31, 2019

Step-by-Step Solution

Answer

1. The net income is $166,100.
2. Balance sheet total is $340,800

Preparation of Income statement

Bradley Company Income Statement For the first quarter, 2019
	First Quarter
Net sales revenue	$305,000
Cost of goods sold	$72,000
Gross profit	$233,000
Selling and administrative expenses	$25,900
Operating income	$207,100
Income tax	$41,000
Net income	$166,100

Preparation of Balance sheet

Bradley Inc. Budgeted Balance Sheet For the first quarter, 2019
Assets
Current Assets:
Cash (Bal. Fig.)	$133,950
Accounts Receivables	$64,700
Raw material inventory	$11,000
Total current assets		$209,650
Property, plant, and equipment
Equipment	168,000
Less: Accumulated depreciation	($36,850)	$131,150
Total Assets		$340,800
Liabilities
Current Liabilities:
Accounts payable	$23,200
Stockholder’s Equity
Common stock, no par	$150,000
Retained earnings	167,600
Total stockholder’s equity		$317,600
Total liabilities and stockholder’s equity		$340,800