Clarke Industries’ balance sheet at December 31, 2011, is presented below.
CLARKE INDUSTRIES
Balance Sheet
December 31, 2011
Assets
Current Assets $ 7,500
Accounts receivable 82,500
Finished good 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
Additional information accumulated for the budgeting process is as follows.
Budgeted data for the year 2012 include the following.
4th Quarter 2012 Total Year 2012
Sales budget (8,000 units at $35) $84,000 $280,000
Direct materials used 17,000 69,400
Direct labor 12,500 56,600
Manufacturing overhead applied 10,000 54,000
Selling and administrative expenses 18,000 76,000
To meet sales requirements and to have 3,000 units of finished good on hand at December 31, 2012, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $20. Clarke 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 the income before 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 2012, the company expects to purchase additional equipment costing $19,000. 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, 2012, includes amounts due suppliers (see above) plus other accounts payable of $5,700. In 2012, the company expects to declare and pay a $5,00 cash dividend. Unpaid income taxes at December 31 will be $5,000. The company’s cash budget shows an expected cash balance of $7,950 at December 31, 2012.
Instructions:
Prepare a budgeted income statement for 2012 and a budgeted balance sheet at December 31,2012. 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, 2012).
Partial Answers: Net Income $35,350
Total Assets $146,550