Chapter 7, Problem 8PSB

1.

To determine

To prepare: Sale budget of I Corporation.

Explanation of Solution

Statement that shows the sales budget of I Incorporation

I Incorporation
Sales Budget
Particulars	January ($)	February ($)	March ($)	Total ($)
Sales unit (A)	6,000	8,000	10,000	24,000
Selling price Per unit (B)	45	45	45	45
Total sales $\left(\text{A}\times \text{B}\right)$	270,000	360,000	450,000	1,080,000
Table (1)

2.

To determine

To prepare: Purchase budget of I Corporation.

Explanation of Solution

Statement that shows the purchase budget of I Incorporation

Table (2)

3.

To determine

To prepare: Selling expense budget of I Incorporation.

Explanation of Solution

Statement that shows the selling expense budget of I Incorporation,

Table (3)

4.

To determine

To prepare: General and administrative expense budget of I Incorporation.

Explanation of Solution

Statement that shows the General and administrative expense budget of I Incorporation

Table (4)

5.

To determine

To prepare: Capital expenditure budget of I Incorporation.

Explanation of Solution

Statement that shows the capital expenditure budget of I Incorporation

Table (5)

6.

To determine

To prepare: Cash budget of I Incorporation.

Explanation of Solution

Statement that shows the Cash budget of I Incorporation

Table (6)

Working Notes:

Calculation of expected cash collection

Table (7)

7.

To determine

To prepare: Budgeted income statement for the first quarter.

Explanation of Solution

Prepare income statement.

I Incorporation
Income Statement
For three months ended March 31,2018
Particulars	Amount ($)	Amount ($)
Sales		1,080,000
Less: Cost of goods sold		720,000
Gross profit		360,000
Less: Operating expenses
Total selling expense	238,500
General administrative salary	45,000
Depreciation expense	21,425
Total operating expense		304,925
Earnings before taxes (A)		55,075
Less: Income tax $\left(\text{A}\times 40\%\right)$		22,030
Net income		33,045
Table (8)

Thus, budgeted net income of I Incorporation is $33,045.

8.

To determine

To prepare: Budgeted balance sheet for the first quarter.

Explanation of Solution

Prepare balance sheet

I Incorporation
Balance sheet
For three months ended March 31,2018
Particulars		Amount ($)
Assets
Cash	36,000
Account Receivables	445,500
Inventory	67,500
Total current assets		549,000
Equipment		647,875
Land		150,000
Net equipment
Total Assets		1,346,875
Liabilities and Stockholder’s Equity
Liabilities
Accounts Payable	496,500
Bank loan payable	76,800
Income tax payable	22,030
Total liabilities		595,330
Stockholder’s Equity
Common Stock	472,500
Retained earnings	279,045
Total stockholders’ equity		751,545
Total Liabilities and Stockholder’s equity		1,346,875
Table (9)

Working note:

Calculation of retained earnings,

$\begin{array}{c}\text{Closing retained earning}=\text{Opening retained earning}+\text{Net income}\\ =\$246,000+\$33,045\\ =\$279,045\end{array}$

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