Problem 236A Krause Industries balance sheet at December 31

Problem 23-6A Krause Industries\' balance sheet at December 31, 2016, is presented below KRAUSE INDUSTRIES Balance Sheet December 31, 2016 Assets Current Assets Cash Accounts receivable Finished goods inventory (1,500 units) $7,500 73,500 25,380 106,380 Total current assets Property, Plant, and Equipment Equipment $40,770 10,060 30,710 Total assets $137,090 Liabilities and Stockholders\' Equity $27,840 45,050 72,890 Notes payable Accounts payable Total liabilities Stockholders\' Equity Common stock Retained earnings $38,900 25,300 Total stockholders\' equity 64,200 Total liabilities and stockholders\' equity $137,090 Budgeted data for the year 2017 include the following. 2017 Quarter 4 Total $76,800 256,000 12,130 62,500 12,500 50,900 10,000 50,280 15,160 75,000 Sales budget (8,000 units at $32) Direct materials used Direct labor Manufacturing overhead applied Selling and administrative expenses To meet sales requirements and to have 2,500 units of finished goods on hand at December 31, 2017, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. Krause uses the first-in, first-out (FIFO) inventory costing method. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% of income before income taxes. In 2017, the company expects to declare and pay an $9,960 cash dividend The company\'s cash budget shows an expected cash balance of $5,880 at December 31, 2017. 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 2017, the company expects to purchase additional equipment costing $11,520. $11,781 of depreciation expense on equipment is included in the budget data and split equally between manufacturing overhead and selling and administrative expenses. Krause expects to pay $9,940 on the outstanding notes payable balance plus all interest due and payable to December 31 included in interest expense $3,500, above). Accounts payable at December 31, 2017, includes amounts due suppliers (see above) plus other accounts payable of $8,390. Unpaid income taxes at December 31 will be $5,390

Solution

KRAUSE INDUSTRIES Budgeted Cost of Goods Sold For the Year 2017 Finished goods inventory, December 31, 2016 25380 Cost of goods manufactured: Direct materials 62500 Direct labor 50900 Manufacturing overheads 50280 163680 Cost of finished goods available for sale 189060 Finished goods inventory, December 31, 2017 (2500 x $18) 45000 Cost of goods sold $ 144060 KRAUSE INDUSTRIES Budgeted Income Statement For the Year 2017 Sales 256000 Cost of goods sold 144060 Gross profit 111940 Selling and administrative expenses 75000 Operating income 36940 Interest expense 3500 Income before income taxes 33440 Income tax expense ($33440 x 40%) 13376 Net income $ 20064 KRAUSE INDUSTRIES Budgeted Retained Earnings Statement For the Year 2017 Retained earnings, December 31, 2016 25300 Add: Net income 20064 45364 Less: Cash dividends 9960 Retained earnings, December 31, 2017 35404 KRAUSE INDUSTRIES Budgeted Balance Sheet December 31, 2017 Assets Current Assets: Cash 5880 Accounts receivable ($76800 x 40%) 30720 Finished goods inventory (2500 units) 45000 Total current assets 81600 Property, Plant, and Equipment Equipment ($40770 + $11520) 52290 Less: Accumulated depreciation ($10060 + $11781) 21841 30449 Total assets 112049 Liabilities and Stockholders\' Equity Liabilities Notes payable ($27840 - $9940) 17900 Accounts payable [($12130 x 50%) + $8390 + $5390] 19845 Total current liabilities 37745 Long-term liabilities 0 Total liabilities 37745 Stockholders\' Equity Common stock 38900 Retained earnings 35404 Total stockholders\' equity 74304 Total liabilities and stockholders\' equity 112049