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    Budget for Kurian Industries

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    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)
    Balance Sheet
    December 31, 2005
    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
    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
    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.

    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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