Prepare the budgeted income statement for 2014

Krause Industries’ balance sheet at December 31, 2013, is presented below.

KRAUSE INDUSTRIES

Balance Sheet

December 31, 2013

Assets

Current Assets

    Cash

$7,500

    Accounts receivable

82,500

    Finished goods inventory (2,000  units)

34,960

      Total current assets

$124,960

Property, Plant, and Equipment

    Equipment

$42,480

    Less: Accumulated depreciation

12,480

30,000

      Total assets

$154,960

Liabilities and Stockholders' Equity

Liabilities

    Notes payable

$27,480

    Accounts payable

47,480

      Total liabilities

74,960

Stockholders' Equity

    Common stock

$47,520

    Retained earnings

32,480

      Total stockholders' equity

80,000

      Total liabilities and stockholders' equity

$154,960

Additional information accumulated for the budgeting process is as follows.

Budgeted data for the year 2014 include the following.

4th Qtr. of 2014

Year 2014 Total

Sales budget (8,000 units at $35)

$84,000

$280,000

Direct materials used

12,040

69,400

Direct labor

12,500

56,600

Manufacturing overhead applied

10,000

51,520

Selling and administrative expenses

15,520

76,000

To meet sales requirements and to have 3,000 units of finished goods on hand at December 31, 2014, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $20. Krause Industries uses the first-in, first-out (FIFO) inventory costing method. Selling and administrative expenses include $13,018 for depreciation on equipment. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% 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 2014, the company expects to purchase additional equipment costing $21,480. It expects to pay $10,480 on notes payable plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2014, include amounts due suppliers (see above) plus other accounts payable of $8,180. In 2014, the company expects to declare and pay an $7,480 cash dividend. Unpaid income taxes at December 31 will be $7,480. The company’s cash budget shows an expected cash balance of $7,950 at December 31, 2014.

(a)

Your answer is correct.

Prepare a budgeted income statement for 2014.

KRAUSE INDUSTRIES

Budgeted Income Statement

For the Year Ending December 31, 2014

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

$

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

    Cost of Goods Available For Sale    Cost of Goods Manufactured    Cost of Goods Sold    Finished Goods Inventory, December 31    Finished Goods Inventory, January 1    Gross Profit    Income before Income Taxes    Income from Operations    Income Tax Expense    Interest Expense    Net Income/ (Loss)    Sales    Selling and Administrative Expenses

$

    Cost of Goods Available For Sale    Cost of Goods Manufactured    Cost of Goods Sold    Finished Goods Inventory, December 31    Finished Goods Inventory, January 1    Gross Profit    Income before Income Taxes    Income from Operations    Income Tax Expense    Interest Expense    Net Income/ (Loss)    Sales    Selling and Administrative Expenses

    Cost of Goods Available For Sale    Cost of Goods Manufactured    Cost of Goods Sold    Finished Goods Inventory, December 31    Finished Goods Inventory, January 1    Gross Profit    Income before Income Taxes    Income from Operations    Income Tax Expense    Interest Expense    Net Income/ (Loss)    Sales    Selling and Administrative Expenses

    Cost of Goods Available For Sale    Cost of Goods Manufactured    Cost of Goods Sold    Finished Goods Inventory, December 31    Finished Goods Inventory, January 1    Gross Profit    Income before Income Taxes    Income from Operations    Income Tax Expense    Interest Expense    Net Income/ (Loss)    Sales    Selling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

Cost of Goods Available For SaleCost of Goods ManufacturedCost of Goods SoldFinished Goods Inventory, December 31Finished Goods Inventory, January 1Gross ProfitIncome before Income TaxesIncome from OperationsIncome Tax ExpenseInterest ExpenseNet Income/ (Loss)SalesSelling and Administrative Expenses

$

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(b)

Prepare a budgeted balance sheet at December 31, 2014. (List assets in order of liquidity.)

KRAUSE INDUSTRIES

Budgeted Balance Sheet

December 31, 2014

Assets

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

$

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

    Accounts Payable    Accounts Receivable    Accumulated Depreciation    Cash    Common Stock    Equipment    Finished Goods Inventory    Income Taxes Payable    Notes Payable    Retained Earnings

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

$

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

$

AddLess: Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

$

Liabilities and Stockholders' Equity

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

$

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

$

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

$

Accounts PayableAccounts ReceivableAccumulated DepreciationCashCommon StockEquipmentFinished Goods InventoryIncome Taxes PayableNotes PayableRetained Earnings

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

Current AssetsCurrent LiabilitiesExpensesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentRevenuesStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal ExpensesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal RevenuesTotal Stockholders' Equity

$