Loose Leaf for Fundamentals of Accounting Principles and Connect Access Card
Loose Leaf for Fundamentals of Accounting Principles and Connect Access Card
22nd Edition
ISBN: 9781259542169
Author: John J Wild
Publisher: McGraw-Hill Education
bartleby

Concept explainers

Budgeted Income Statement
Accounting is the process of recording business-related financial transactions. The process of accounting involves summarizing and analyzing the transactions. The financial statements which are prepared in accounting contain a summary of the various tran…
bartleby

Videos

Question
Book Icon
Chapter 22, Problem 8APSA
Requirement 1-

To determine

To prepare:

Monthly sales budget

Requirement 1-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

    DIMSDALE SPORTS COMPANY
    Monthly sales budget (in units and sales value)
     
    		 
    		 
    		 
    		 
     
    		JanuaryFebruaryMarchQuarter
    Sales in units
    		7,000
    		9,000
    		11,000
    		27,000
    Selling price per unit
    		$55
    		$55
    		$55
    		$55
    Dollar sales value($)
    		385,000
    		495,000
    		605,000
    		1,485,000

Explanation of Solution



Dollar sales value for each month is calculated as follows-

  Dollar sales value=Sales in units×Selling price per unitDollar sales value for January=7,000×$55 Dollar sales value for January=$385,000 Dollar sales value for February=9,000×$55 Dollar sales value for February=$495,000 Dollar sales value for March=11,000×$55 Dollar sales value for March=$605,000 Dollar sales value for Quarter=27,000×$55 Dollar sales value for Quarter=$1,485,000

Conclusion

Thus, the monthly sales budget has been prepared both in units and sales value.

Requirement 2-

To determine

To prepare:

Merchandise purchases budget

Requirement 2-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

Budgeted purchases: Budgeted purchases are the estimates of purchases of a particular month based on the sales requirement and ending inventory requirement and the budgeted beginning inventory.

    DIMSDALE SPORTS COMPANY
    Monthly merchandise purchases budgets
     
    		 
    		 
    		 
    		 
     
    		JanuaryFebruaryMarchQuarter
    Budgeted Sales for the month
    		7,000
    		9,000
    		11,000
    		 
    Ending inventory in units
    		1,800
    		2,200
    		2,000
    		 
    Total Needs
    		8,800
    		11,200
    		13,000
    		 
    Less: Beginning inventory
    		(5,000)
    		(1,800)
    		(2,200)
    		 
    Merchandise purchases in units required
    		3,800
    		9,400
    		10,800
    		 
    Cost per unit
    		$30
    		$30
    		$30
    		 
    Dollar value of purchases ($)
    		114,000
    		282,000
    		324,000
    		720,000

Explanation of Solution

First, ending inventory in units is required to be calculated-
Calculation of ending inventory in units is as under-

  Ending inventory requirement = 20% of Next Months Expected sales unitsEnding inventory requirement for January =20%X Expected sales units for FebruaryEnding inventory requirement for January =20%X 9,000 unitsEnding inventory requirement for January =1,800 unitsEnding inventory requirement for February =20%X Expected sales units for MarchEnding inventory requirement for February =20% X 11,000 unitsEnding inventory requirement for February =2,200 unitsEnding inventory requirement for March =20%X Expected sales units for AprilEnding inventory requirement for March =20% X 10,000unitsEnding inventory requirement for March  = 2,000 units

Now, Merchandise purchases required is to be calculated-

  Required merchandise purchases= Ending Inventory + Expected sales of the month – Beginning Inventory

Given, Expected sales of the month-

  • January − 7,000 units
  • February − 9,000 units
  • March − 11,000 units
    • Ending inventory −
  • January − 1,800 units
  • February − 2,200 units
  • March − 2,000 units
    • Beginning inventory-
  • Ending inventory of the previous month shall be beginning inventory of current month.

  • January − 5,000 units (given)
  • February − 1,800 units
  • March − 2,000 units
    • Total requirement for the month of January, February and March-

      Required merchandise purchases = Ending Inventory + Expected sales of the month – Beginning Inventory Required merchandise purchases for January=1,800 units+7,000 units–5,000 units Required merchandise purchases for January=3,800 units Required merchandise purchases for February=2,200 units+9,000 units–1,800 units Required merchandise purchases for February =9,400units Required merchandise purchases for March=2,000 units+11,000 units–2,200 units Required merchandise purchases for March=10,800units

Dollar Value of purchases is calculated as follows-

   Dollar value of purchase =Required merchandise purchase × Cost per unit Dollar value of purchase for January=3,800 units×$30Dollar value of purchase for January=$114,000 Dollar value of purchase for February=9,400 units×$30 Dollar value of purchase for February=$282,000 Dollar value of purchase for March=10,800 units×$30 Dollar value of purchase for March=$324,000  

Conclusion

Thus, the merchandise purchase budget has been prepared for the months of January, February and March.

Requirement 3-

To determine

To prepare:

Monthly selling expense Budget

Requirement 3-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

    DIMSDALE SPORTS COMPANY
    Monthly Selling Expense budgets
     
    		 
    		 
    		 
     
    		January ($)February ($)March ($)
    Sales commissions
    		77,000
    		99,000
    		121,000
    Sales salaries
    		5,000
    		5,000
    		5,000
    Selling expenses
    		82,000
    		104,000
    		126,000

Explanation of Solution

First we need to calculate Sales commissions.
Calculation of sales commission is as under-

  Sales Commission=20%×SalesSales Commission for January=20%×$385,000 Sales Commission for January=$77,000 Sales Commission for February=20%×$495,000 Sales Commission for February=$99,000 Sales Commission for March=20%×$605,000 Sales Commission for March=$121,000

Sales salary for each month-

  Sales salary for each month= $60,000 12 monthsSales salary for each month=$5,000

Selling expense for each month is calculated as under-

  Selling Expense=Sales Commission+Sales salarySelling Expense for January=$77,000+$5,000 Selling Expense for January=$82,000 Selling Expense for February=$99,000+$5,000 Selling Expense for February=$104,000 Selling Expense for March=$121,000+$5,000 Selling Expense for March=$126,000

Conclusion

Thus, the selling expense budget is prepared for the month of January, February and March.

Requirement 4-

To determine

To prepare:

Monthly general and administrative expense Budget

Requirement 4-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

    DIMSDALE SPORTS COMPANY
    Monthly general and administrative budgets
     
    		 
    		 
    		 
     
    		JanuaryFebruaryMarch
    Depreciation expense
    		6,000
    		7,000
    		7,300
    General and administrative salaries
    		12,000
    		12,000
    		12,000
    Maintenance expense
    		2,000
    		2,000
    		2,000
    Total general and administrative expenses 20,00021,00021,300

Explanation of Solution

Given: Maintenance Expense = $2,000 per month
General and administrative salaries for each month-

  General and administrative salaries for each month= Total salary for year 12 monthsGeneral and administrative salaries for each month= $144,000 12 monthsGeneral and administrative salaries for each month=$12,000

Depreciation expense-
 Given,
Beginning balance - $540,000
Purchase of equipment-

  • January -$36,000
  • February-$96,000
  • March-$28,800
    • January-
      Equipment balance at the end of January= Beginning balance + purchasesEquipment balance at the end of January=$540,000+$36,000Equipment balance at the end of January=$576,000


  Depreciation expense for January =( Equipment value Estimated useful life )× 1month 12 monthsDepreciation expense for January =( $576,000 8years )×  1month 12 monthsDepreciation expense for January =$6,000

February-
  Balance at the end of February = Balance at the end of January + PurchasesBalance at the end of February =$576,000+96,000Balance at the end of February =$672,000


  Depreciation expense for February =( Equipment value Estimated useful life )× 1month 12 monthsDepreciation expense for February =( $672,000 8years )×  1month 12 monthsDepreciation expense for February =$7,000

March-
  Balance at the end of March = Balance at the end of February + PurchasesBalance at the end of March =$672,000+28,800Balance at the end of March =$700,800


  Depreciation expense for March =( Equipment value Estimated useful life )× 1month 12 monthsDepreciation expense for March =( $700,800 8years )×  1month 12 monthsDepreciation expense for March =$7,300

Total General and administrative expenses for each month is calculated as under-

   Total General and administrative expenses= Depreciationexpense+General and administrative salaries +Maintenance Expense Total General and administrative expenses for January=$6,000+$12,000+$2,000Total General and administrative expenses for January=$20,000 Total General and administrative expenses for February=$7,000+$12,000+$2,000 Total General and administrative expenses for February=$21,000 Total General and administrative expenses for March=$7,300+$12,000+$2,000 Total General and administrative expenses for March=$21,300

Conclusion

Thus, the general and administrative expenses budget is prepared for the month of January, February and March.

Requirement 5-

To determine

To prepare:

Monthly capital expenditures Budget

Requirement 5-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

    DIMSDALE SPORTS COMPANY
    Capital Expenditures budget
     
    		 
    		 
    		 
    		 
     
    		JanuaryFebruaryMarchQuarter
    Purchase of Equipment
    		36,000
    		96,000
    		28,800
    		160,800
    Purchase of Land
    		0
    		0
    		150,000
    		150,000
    Total Capital expenditure36,00096,000178,800310,800

Explanation of Solution

Given-

  • Purchase of Equipment in January = $36,000
  • Purchase of Equipment in February = $96,000
  • Purchase of Equipment in March = $28,800
  • Purchase of Land in March = $150,000

    •   Total capital expenditure in March= Purchase of Equipment+ Purchase of LandTotal capital expenditure in March=$28,800 + $150,000Total capital expenditure in March=$178,800

Conclusion

Thus, Capital expenditure budget is prepared.

Requirement 6-

To determine

To prepare:

Monthly Cash Budget

Requirement 6-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

    DIMSDALE SPORTS COMPANY
    Monthly cash budgets
     
    		 
    		 
    		 
     
    		JanuaryFebruaryMarch
    Beginning cash balance
    		36,000
    		30,100
    		210,300
    Cash receipts:
    		 
    		 
    		 
    Cash sales
    		96,250
    		123,750
    		151,250
    Collection from -
    		 
    		 
    		 
    Beginning accounts receivable
    		125,000
    		400,000
    		 
    Credit sales of January
    		 
    		173,250
    		115,500
    Credit sales of February
    		 
    		 
    		222,750
    Total cash receipts
    		221,250
    		697,000
    		489,500
    Total cash available 257,250727,100699,800
    Less: Cash disbursements-
    		 
    		 
    		 
    Merchandise purchases
    		 
    		 
    		 
    Beginning accounts payable
    		80,000
    		280,000
    		 
    January accounts payable
    		 
    		22,800
    		91,200
    February accounts payable
    		 
    		 
    		56,400
    Selling expenses (Req.3)
    		82,000
    		104,000
    		126,000
    General and administrative expenses excluding depreciation (Req.4)
    		14,000
    		14,000
    		14,000
    Capital Expenditure (Req.5)
    		36,000
    		96,000
    		178,800
    Interest on bank loan
    		 150
    		 

    Total cash disbursements 212,150516,800466,400
    Surplus/ ( deficiency) of cash
    		45,100
    		210,300
    		233,400
    Borrowing / ( Repayment)
    		(15,000) 
    		 

    Ending cash balance
    		30,100
    		210,300
    		233,400

Explanation of Solution


Cash sales is calculated as under-

   Cash sales = 25% ×Total sales of the month Cash sales for January=25%×$385,000 Cash sales for January=$96,250 Cash sales for February=25%×$495,000 Cash sales for February=$123,750 Cash sales for March=25%×$605,000Cash sales for March=$151,250

Beginning accounts receivable-
Given-

  • January-$125,000
  • February-$400,000
    • Credit Sales-
    For the month of February-
      Credit sale receipt in the month of February=60%×January Credit salesCredit sale receipt in the month of February=60%×[Total January sales ×75%]Credit sale receipt in the month of February=60%×[$385,000×75%]Credit sale receipt in the month of February=60%×$288,750Credit sale receipt in the month of February=$173,250

For the month of March-

   Credit sale receipt ={ 40%×January Credit sales}+{ 60%×February Credit sales} Credit sale receipt ={ 40%×[ Total January sales ×75%]}+{ 60%×[ Total February sales ×75%]} Credit sale receipt ={ 40%×[ $385,000×75%]}+{ 60%×[ $495,000×75%]} Credit sale receipt ={ 40%×$288,750}+{ 60%×$371,250} Credit sale receipt =$115,500+$222,750Credit sale receipt =$338,250

Beginning accounts payable-
Given-

  • January-$80,000
  • February-$280,000
    • Calculation of accounts payable is as under-
    For the month of February-
       Accounts payable=20%×January purchases Accounts payable=20%×$114,000Accounts payable=$22,800

For the month of March-

  Accounts payable=( 80%×January purchases)+( 20%×February purchases)Accounts payable=( 80%×$114,000)+( 20%×$282,000)Accounts payable=$91,200+$56,400Accounts payable=$147,600

Total cash available is calculated as under-
   Total cash available = Beginning cash balance + Total cash receipts Total cash available for January =$36,000+221,250 Total cash available for January =$257,250  Total cash available for February =$30,100+$697,000 Total cash available for February =$727,100  Total cash available for March =$210,300+$489,500Total cash available for March =$699,800

Surplus of cash-
   Surplus of cash = Total cash available – Total Cash disbursements Surplus of cash for January = $257,250−$212,150 Surplus of cash for January =$45,100  Surplus of cash for February =$727,100−$516,800 Surplus of cash for February =$210,300  Surplus of cash for March =$699,800−$466,400Surplus of cash for March =$233,400


  Interest on bank loan = $15,000×1% = $150

Conclusion

Thus, Cash budget is prepared.

Requirement 7-

To determine

To prepare:

Budgeted income statement

Requirement 7-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

    DIMSDALE SPORTS COMPANY
    Income Statement
     
    		 
    		 
    ParticularsAmount ($)Amount ($)
    Sales (Req.1)
    		 
    		1,485,000
    Cost of merchandise sold
    		 
    		810,000
    Gross Profit
    		 
    		675,000
    Operating expenses:
    		 
    		 
    Selling expenses (Req.3)
    		312,000
    		 
    General and administrative expenses (Req.4)
    		62,300
    		 
    Interest on bank loan
    		150
    		374,450
    Income before tax
    		 
    		300,550
    Tax @ 40%
    		 
    		120,220
    Net operating income
    		 
    		180,330

Explanation of Solution

Cost of merchandise sold-

  Cost of merchandise sold = No. of units ×Cost priceCost of merchandise sold =27,000×$30Cost of merchandise sold =$810,000

Gross profit is calculated as under-

  Gross profit = Sales – Cost of merchandise soldGross profit =$1,485,000−$810,000Gross profit =$675,000

Interest Expense-

  Interest on bank loan = $15,000×1% = $150

Income before tax-

   Income before tax= Sales−Cost of goods sold−Selling Expense −General and administrative expenses− Interest expenseIncome before tax=$1,485,000−$810,000−$312,000−$62,300−$150Income before tax=$300,550

Tax Expense-

  Tax Expense=Income before tax×Tax RateTax Expense=$300,550×40%Tax Expense=$120,220

Net Operating income is calculated as under-

  Net Operating income= Income before tax−Tax ExpenseNet Operating income=$300,550−$120,220Net Operating income=$180,330

Conclusion

Thus, Income statement is prepared for the quarter.

Requirement 8-

To determine

To prepare:

Budgeted Balance sheet.

Requirement 8-

Expert Solution
Check Mark

Answer to Problem 8APSA

Solution:

    DIMSDALE SPORTS COMPANY
    Balance sheet as of March 31, 2016
     
    		 
    		 
    Amount ($)Amount ($)
    Assets
    		 
    		 
    Cash
    		233,400
    		 
    Accounts receivable
    		602,250
    		 
    Inventory
    		60,000
    		 
    Total current assets
    		 
    		895,650
    Land
    		 
    		150,000
    Equipment gross
    		610,800
    		 
    Accumulated depreciation
    		(87,800)
    		 
    Equipment net
    		 
    		523,000
    Total assets  
    		1,568,650
    Stockholder's Equity and Liabilities 
    		 
    Accounts payable
    		549,600
    		 
    Tax payable
    		120,220
    		 
    Current liabilities
    		 
    		669,820
    Common stock
    		 
    		472,500
    Retained earnings
    		 
    		426,330
    Total Stockholder's Equity and Liabilities 1,568,650

Explanation of Solution

Assets
 Given,
Land = $150,000 (from Requirement 5)
Cash = $233,400 (from Requirement 6)
Calculation of total current assets is as under-
   Current assets= Cash + Accounts receivable+Inventory Current assets=$233,400+$602,250+$60,000Current assets=$895,650

Accumulated Depreciation-
   Accumulated depreciation=Beginning Accumulated depreciation+Depreciation expenses Accumulated depreciation=$67,500+$20,300Accumulated depreciation=$87,800

Equipment-
   Equipment =Equipment gross−Accumulated Depreciation Equipment =$610,800−$87,800Equipment =$523,000

Calculation of total assets is as under-
   Total Assets=Total Current assets+Land+Equipment Total Assets=$895,650+$150,000+$523,000Total Assets=$1,568,650

Total Stockholder's Equity and Liabilities Given,
Taxes payable = 120,220 (from requirement 7)
Common stock = $472,500
Accounts payable-$549,600
Calculation of Current liabilities is as under-

  Current liabilities=Accounts payable+Taxes payableCurrent liabilities=$549,600+$120,220Current liabilities= $669,820

Retained earnings-
  Retained earnings = Beginning retained earnings + Net IncomeRetained earnings =$246,000+$180,330Retained earnings =$426,330

Calculation of Total Stockholder's Equity and Liabilities is as under-
   Total Stockholder's Equity and Liabilities=Current liabilities+Common stock+ Retained earnings Total Stockholder's Equity and Liabilities=$669,820+$472,500+$426,330Total Stockholder's Equity and Liabilities=$1,568,650

Conclusion

Thus, Budgeted balance sheet is prepared with total of $1,568,650.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Previous
Chapter 22, Problem 7APSA
Next
Chapter 22, Problem 1BPSB

Chapter 22 Solutions

Loose Leaf for Fundamentals of Accounting Principles and Connect Access Card

Ch. 22 - Prob. 1DQCh. 22 - Prob. 2DQCh. 22 - Prob. 3DQCh. 22 - Prob. 4DQCh. 22 - Prob. 5DQCh. 22 - Prob. 6DQCh. 22 - Prob. 7DQCh. 22 - Prob. 8DQCh. 22 - Prob. 9DQCh. 22 - Prob. 10DQ
Ch. 22 - Apple regularly uses budgets. What is the...Ch. 22 - Prob. 12DQCh. 22 - Prob. 13DQCh. 22 - Prob. 14DQCh. 22 - Prob. 1QSCh. 22 - Budgeting process C1 Good management includes good...Ch. 22 - Components of a master budget C2 Identify which 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 - Activity-based budgeting Activity-based budgeting...Ch. 22 - Prob. 32QSCh. 22 - Exercise 22-1 Budget consequences C1 Participatory...Ch. 22 - Exercise 22-2 Master budget definitions C2 Match...Ch. 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 - Prob. 13ECh. 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 - Exercise 22-35 Activity-based budgeting A1 Render...Ch. 22 - Prob. 1APSACh. 22 - Prob. 2APSACh. 22 - Prob. 3APSACh. 22 - Prob. 4APSACh. 22 - Prob. 5APSACh. 22 - Prob. 6APSACh. 22 - Prob. 7APSACh. 22 - Prob. 8APSACh. 22 - Problem 22-1B Manufacturing: Preparing production...Ch. 22 - Prob. 2BPSBCh. 22 - Prob. 3BPSBCh. 22 - Prob. 4BPSBCh. 22 - Prob. 5BPSBCh. 22 - Prob. 6BPSBCh. 22 - Prob. 7BPSBCh. 22 - Prob. 8BPSBCh. 22 - Prob. 22SPCh. 22 - Prob. 1BTNCh. 22 - Prob. 2BTNCh. 22 - Both the budget process and budgets themselves can...Ch. 22 - The sales budget is usually the first and most...Ch. 22 - Prob. 5BTNCh. 22 - Prob. 6BTNCh. 22 - Prob. 7BTNCh. 22 - To help understand the factors impacting a sales...Ch. 22 - Prob. 9BTN
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
SEE MORE TEXTBOOKS
What is Budgeting? | Budgetary control | Advantages & Limitations of Budgeting; Author: Educationleaves;https://www.youtube.com/watch?v=INnPo0QPXf4;License: Standard youtube license