Chapter 20, Problem 8PSA

1.

To determine

To prepare:

The sales budget of D Company.

Explanation of Solution

Prepare the sales budget of D Company as shown below.

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:

The purchase budget of D Company.

Explanation of Solution

Prepare the purchase budget of D Company as shown below.

Table (2)

3.

To determine

To prepare:

The selling expense budget of D Company.

Explanation of Solution

Prepare the selling expense budget of D Company as shown below.

Table (3)

4.

To determine

To prepare:

The general and administrative expense budget of D Company.

Explanation of Solution

Prepare the general and administrative expense budget of D Company as shown below.

Table (4)

5.

To determine

To prepare:

The capital expenditure budget of D Company.

Explanation of Solution

Prepare the capital expenditure budget of D Company as shown below.

Table (5)

6.

To determine

To prepare:

The cash budget of D Company.

Explanation of Solution

Prepare the cash budget of D Company as shown below.

Table (6)

Working notes:

1. Calculate the expected cash collection.

Table (7)

2. Calculate the cash payment from purchase.

Table (8)

7.

To determine

To prepare:

The budgeted income statement for the first quarter.

Explanation of Solution

Prepare the income statement as shown below.

Income Statement
For three months ended March 31, 2016
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 (9)

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

8.

To determine

To prepare:

The budgeted balance sheet for the first quarter.

Explanation of Solution

Prepare the balance sheet for the first quarter as shown below.

Balance sheet
For three months ended March 31, 2016
Particulars	Amount ($)	Amount ($)
Assets
Cash	233,400
Accounts receivable	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 (10)

Working note:

Calculate the retained earnings.

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

Conclusion

Hence, the total amount appearing on the balance sheet of D Company as on March 31, 2016 is $1,568,650.