Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
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Chapter 22, Problem 25E
To determine

Prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

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Explanation of Solution

Budgeted Income Statement

The statement that indicates the expected profitability of operations for the budget period is known as the budgeted income statement. It also provides the basis for evaluating the performance of a company, and act as a call to action.

Prepare a budgeted income statement for the month of July.

Company A
Budgeted Income Statement
For Month Ended July 31
ParticularsAmountAmount
Sales          1,400,000
Less: Cost of goods sold              770,000
Gross profit               630,000
Less: Operating expenses  
      Salaries expense         285,000  
      Depreciation expense            36,000  
      Other cash expenses          200,000  
      Bank loan interest expense              6,600  
Total expenses               527,600
Income before taxes               102,400
Less: Income tax expense                 30,720
Net income                 71,680

Table (1)

Working note:

Calculate cost of goods sold.

Particulars Amount
Sales $1,400,000
Cost percent × 55%
Cost of goods sold $770,000

Table (2)

Calculate salaries expense.

Particulars Amount
Cash paid $275,000
Less: Beginning payable -50,000
Add: Ending payable 60,000
Salaries expense $285,000

Table (3)

Calculate income tax expense.

Particulars Amount
Pre-tax income  $102,400
Tax rate  ×30%
Income tax expense $30,720

Table (4)

Prepare a budgeted balance sheet for July 31.

Company A
Budgeted Balance Sheet
As of July 31
Assets
Cash               122,400
Accounts receivable            1,220,000
Inventory                 60,000
Total current assets           1,402,400
Equipment          1,600,000  
Less: Accumulated depreciation              316,000          1,284,000
Total assets           2,686,400
Liabilities and Equity
Liabilities  
Accounts payable              300,000  
Salaries payable                60,000  
Income taxes payable                30,720  
Total current liabilities              390,720  
Bank loan payable              660,000          1,050,720
Stockholders’ equity  
Common stock              600,000  
Retained earnings         1,035,680          1,635,680
Total liabilities and equity           2,686,400

Table (5)

Working note:

Calculate cost of goods sold.

Particulars Amount
June sales (20% × $1,200,000) $240,000
July sales   (70% × $1,400,000) 980,000
Cost of goods sold$1,220,000

Table (6)

Calculate accumulated depreciation.

Particulars Amount
Beginning Accumulated depreciation$280,000
Add: Depreciation Expense 36,000
Ending Accumulated depreciation$316,000

Table (7)

Calculate accounts payable.

Particulars Amount
Purchases $750,000
Percent unpaid ×40%
Accounts payable balance$300,000

Table (8)

Calculate ending retained earnings.

Particulars Amount
Beginning retained earnings$964,000
Net income 71,680
Ending retained earnings$1,035,680

Table (9)

Determine cash balance as of July 31 using cash budget.

Company A
Cash Budget
For Month Ended July 31
Beginning cash balance$50,000 
Cash receipts from sales  1,364,000 
Total cash available $1,414,000
Cash disbursements:  
Payments for merchandise 730,000 
Salaries275,000 
Other expenses200,000 
Accrued taxes80,000 
Interest on bank loan6,600 
Total cash disbursements (1,291,600)
Ending cash balance $122,400

Table (10)

Working note for cash budget: Compute the cash receipts in the month of July.

ParticularsAmount ($)
From May sales ($1,720,000×20%) $344,000
From June sales ($1,200,000×50%)  600,000
From July sales ($1,400,000×30%)      420,000
Total cash receipts$1,364,000

Table (11)

Working note for cash budget: Compute the cash disbursement in the month of July.

For June purchases ($700,000×40%) $280,000
For July purchases ($750,000×60%)      450,000
Total cash disbursement$730,000

Table (12)

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Chapter 22 Solutions

Principles of Financial Accounting.

Ch. 22 - Prob. 6DQCh. 22 - Prob. 7DQCh. 22 - Prob. 8DQCh. 22 - Prob. 9DQCh. 22 - Prob. 10DQCh. 22 - Prob. 11DQCh. 22 - Prob. 12DQCh. 22 - Prob. 13DQCh. 22 - Prob. 14DQCh. 22 - Prob. 1QSCh. 22 - Prob. 2QSCh. 22 - QS 22-3 Identify which of the following sets of...Ch. 22 - Prob. 4QSCh. 22 - Prob. 5QSCh. 22 - Prob. 6QSCh. 22 - Prob. 7QSCh. 22 - Prob. 8QSCh. 22 - Prob. 9QSCh. 22 - Prob. 10QSCh. 22 - Prob. 11QSCh. 22 - Prob. 12QSCh. 22 - Prob. 13QSCh. 22 - Prob. 14QSCh. 22 - Prob. 15QSCh. 22 - Prob. 16QSCh. 22 - Prob. 17QSCh. 22 - Prob. 18QSCh. 22 - Prob. 19QSCh. 22 - Prob. 20QSCh. 22 - Prob. 21QSCh. 22 - Prob. 22QSCh. 22 - Prob. 23QSCh. 22 - Prob. 24QSCh. 22 - Prob. 25QSCh. 22 - Prob. 26QSCh. 22 - Prob. 27QSCh. 22 - Prob. 28QSCh. 22 - Prob. 29QSCh. 22 - Prob. 30QSCh. 22 - Prob. 31QSCh. 22 - Prob. 32QSCh. 22 - Prob. 1ECh. 22 - Prob. 2ECh. 22 - Prob. 3ECh. 22 - Prob. 4ECh. 22 - Prob. 5ECh. 22 - Prob. 6ECh. 22 - Prob. 7ECh. 22 - Prob. 8ECh. 22 - Prob. 9ECh. 22 - Prob. 10ECh. 22 - Prob. 11ECh. 22 - Prob. 12ECh. 22 - Exercise 22-13 Electro Company budgets production...Ch. 22 - Prob. 14ECh. 22 - Prob. 15ECh. 22 - Prob. 16ECh. 22 - Prob. 17ECh. 22 - Prob. 18ECh. 22 - Prob. 19ECh. 22 - Prob. 20ECh. 22 - Prob. 21ECh. 22 - Prob. 22ECh. 22 - Prob. 23ECh. 22 - Prob. 24ECh. 22 - Prob. 25ECh. 22 - Prob. 26ECh. 22 - Prob. 27ECh. 22 - Prob. 28ECh. 22 - Prob. 29ECh. 22 - Prob. 30ECh. 22 - Prob. 31ECh. 22 - Prob. 32ECh. 22 - Prob. 33ECh. 22 - Prob. 34ECh. 22 - Prob. 1APCh. 22 - Prob. 2APCh. 22 - Prob. 3APCh. 22 - Prob. 4APCh. 22 - Prob. 5APCh. 22 - Prob. 6APCh. 22 - Prob. 7APCh. 22 - Prob. 8APCh. 22 - Prob. 1BPCh. 22 - Prob. 2BPCh. 22 - Prob. 3BPCh. 22 - Prob. 4BPCh. 22 - Prob. 5BPCh. 22 - Prob. 6BPCh. 22 - Prob. 7BPCh. 22 - Prob. 8BPCh. 22 - Prob. 22SPCh. 22 - Prob. 1BTNCh. 22 - Prob. 2BTNCh. 22 - BTN 22-3 Both the budget process and budgets...Ch. 22 - Prob. 7BTNCh. 22 - Prob. 9BTN
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