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Budgeted Income Statement P9-6A Kurian Industries' balance sheet at December 31, 2005, is presented below. Additional information accumulated for the budgeting process is as follows. Budgeted data for the year 2006 include the following. Prepare purchases and income statement budgets for a merchandiser. (SO 6) KURIAN INDUSTRIES Balance Sheet December 31, 2005 Assets Current assets Cash $ 7,500 Accounts receivable 82,500 Finished goods inventory (2,000 units) 30,000 Total current assets 120,000 Property, plant, and equipment Equipment $40,000 Less: Accumulated depreciation 10,000 30,000 Total assets $150,000 Liabilities and Stockholders' Equity Liabilities Notes payable $ 25,000 Accounts payable 45,000 Total liabilities 70,000 Stockholders' equity Common stock $50,000 Retained earnings 30,000 Total stockholders' equity 80,000 Total liabilities and stockholders' equity $150,000 Year 4th Qtr. 2006 of 2006 Total Sales budget (8,000 units at $30) $70,000 $240,000 Direct materials used 17,000 69,400 Direct labor 8,500 38,600 Manufacturing overhead applied 10,000 54,000 Selling and administrative expenses 18,000 76,000 (a) Purchases: July $247,500 August $277,500 (b) Net income: July $62,650 August $73,500 Prepare budgeted income statement and balance sheet. (SO 3, 4, 5) To meet sales requirements and to have 3,000 units of finished goods on hand at December 31, 2006, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. Kurian Industries uses the first-in, first-out (FIFO) inventory costing method. Selling and administrative expenses include $4,000 for depreciation on equipment. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 30% of income before income taxes. All sales and purchases are on account. It is expected that 60% of quarterly sales are collected in cash within the quarter and the remainder is collected in the following quarter. Direct materials purchased from suppliers are paid 50% in the quarter incurred and the remainder in the following quarter. Purchases in the fourth quarter were the same as the materials used. In 2006, the company expects to purchase additional equipment costing $14,000. It expects to pay $8,000 on notes payable plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2006, includes amounts due suppliers (see above) plus other accounts payable of $10,700. In 2006, the company expects to declare and pay a $5,000 cash dividend. Unpaid income taxes at December 31 will be $5,000. The company's cash budget shows an expected cash balance of $9,950 at December 31, 2006. Instructions Prepare a budgeted income statement for 2006 and a budgeted balance sheet at December 31, 2006. In preparing the income statement, you will need to compute cost of goods manufactured (direct materials  direct labor  manufacturing overhead) and finished goods inventory (December 31, 2006). 384 CHAPTER 9 Budgetary Planning Net income $15,750 Total assets $131,950 Problems: Set


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