Answered: A. Prepare a budgeted multiple-step…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Krause Industries’ balance sheet at December 31, 2019, is presented below.

KRAUSE INDUSTRIES Balance Sheet December 31, 2019
Assets
Current Assets
Cash		$7,500
Accounts receivable		73,500
Finished goods inventory (1,500 units)		26,320
Total current assets		107,320
Property, Plant, and Equipment
Equipment	$40,010
Less: Accumulated depreciation	10,200	29,810
Total assets		$137,130
Liabilities and Stockholders' Equity
Liabilities
Notes payable		$27,820
Accounts payable		45,040
Total liabilities		72,860
Stockholders' Equity
Common stock	$38,930
Retained earnings	25,340
Total stockholders' equity		64,270
Total liabilities and stockholders' equity		$137,130

Budgeted data for the year 2020 include the following.

	2020
	Quarter 4	Total
Sales budget (8,000 units at $32)	$76,800	$256,000
Direct materials used	11,280	62,500
Direct labor	12,500	50,900
Manufacturing overhead applied	10,000	48,600
Selling and administrative expenses	15,250	75,000

To meet sales requirements and to have 2,500 units of finished goods on hand at December 31, 2020, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. Krause uses the first-in, first-out (FIFO) inventory costing method. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% of income before income taxes. In 2020, the company expects to declare and pay an $10,450 cash dividend.

The company’s cash budget shows an expected cash balance of $5,880 at December 31, 2020. All sales and purchases are on account. It is expected that 60% of quarterly sales are collected in cash within the quarter and the remainder is collected in the following quarter. Direct materials purchased from suppliers are paid 50% in the quarter incurred and the remainder in the following quarter. Purchases in the fourth quarter were the same as the materials used. In 2020, the company expects to purchase additional equipment costing $9,380. $7,212 of depreciation expense on equipment is included in the budget data and split equally between manufacturing overhead and selling and administrative expenses. Krause expects to pay $9,450 on the outstanding notes payable balance plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2020, includes amounts due suppliers (see above) plus other accounts payable relating to manufacturing overhead of $7,540. Unpaid income taxes at December 31 will be $7,700.

A. Prepare a budgeted multiple-step income statement for 2020.

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