Chapter 20, Problem 8PSA

1.

To determine

To prepare: Sale budget of D Company.

Explanation of Solution

Statement that shows the sales budget of D Company

D Company
Sales Budget
Particulars	January ($)	February ($)	March ($)	Total ($)
Sales unit (A)	7,000	9,000	11,000	27,000
Selling price Per unit (B)	55	55	55	55
Total sales $\left(\text{A}\times \text{B}\right)$	385,000	495,000	605,000	1,485,000
Table (1)

2.

To determine

To prepare: Purchase budget of D Company.

Explanation of Solution

Statement that shows the purchase budget of D Company

Table (2)

3.

To determine

To prepare: Selling expense budget of D Company.

Explanation of Solution

Statement that shows the selling expense budget of D Company,

Table (3)

4.

To determine

To prepare: General and administrative expense budget of D Company.

Explanation of Solution

Statement that shows the General and administrative expense budget of D Company

Table (4)

Working notes:

Statement that shows the depreciation expense calculation

Particulars	January ($)	February ($)	March ($)
Equipment in Beginning	540,000	576,000	672,000
Add: Purchase of Equipment	36,000	96,000	28,800
Less: equipment at the end	576,000	672,000	700,800
Depreciation	6,000	7,000	7,300
Table (5)

5.

To determine

To prepare: Capital expenditure budget of D Company.

Explanation of Solution

Statement that shows the capital expenditure budget of D Company

Table (6)

6.

To determine

To prepare: Cash budget of D Company.

Explanation of Solution

Statement that shows the Cash budget of D Company

Table (7)

Working notes:

Calculation of expected cash collection

Table (8)

Calculation of cash payment from purchase,

Table (9)

7.

To determine

To prepare: Budgeted income statement for the first quarter.

Explanation of Solution

Prepare income statement.

D Company
Income Statement
For three months ended March 31,2018
Particulars	Amount ($)	Amount ($)
Sales		1,485,000
Less: Cost of goods sold $\left(27,000\text{ units}\times \$30\right)$		810,000
Gross profit		675,000
Less: Operating expenses
Total selling expense	312,000
General administrative salary	62,300
Interest on bank loan	150
Total operating expense		374,450
Earnings before taxes (A)		300,550
Less: Income tax $\left(\text{A}\times 40\%\right)$		120,220
Net income		180,330
Table (10)

Thus, budgeted net income of D Company is $180,330.

8.

To determine

To prepare: Budgeted balance sheet for the first quarter.

Explanation of Solution

Prepare balance sheet

D Company
Balance sheet
For three months ended March 31,2018
Particulars		Amount ($)
Assets
Cash	233,400
Account Receivables	602,250
Inventory	60,000
Total current assets		895,650
Equipment		523,000
Land		150,000
Net equipment
Total Assets		1,568,650
Liabilities and Stockholder’s Equity
Liabilities
Accounts Payable	549,600
Income tax payable	120,220
Total liabilities		669,820
Stockholder’s Equity
Common Stock	472,500
Retained earnings	426,330
Total stockholders’ equity		898,830
Total Liabilities and Stockholder’s equity		1,568,650
Table (11)

Working Notes:

Calculation of retained earnings,

$\begin{array}{c}\text{Closing retained earning}=\text{Opening retained earning}+\text{Net income}\\ =\$246,000+\$180,330\\ =\$426,330\end{array}$

Hence, the total of the balance sheet of the D Company as on March 31, 2018 is of $1,568,650.