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Q.20-26E

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Financial & Managerial Accounting
Found in: Page 921
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Use the information in Exercise 20-25 and the following additional information to prepare a budgeted income statement for the month of July and a budgeted balance sheet for July 31.

a. Cost of goods sold is 55% of sales.

b. Inventory at the end of June is $80,000 and at the end of July is $60,000.

c. Salaries payable on June 30 are $50,000 and are expected to be $60,000 on July 31.

d. The equipment account balance is $1,600,000 on July 31. On June 30, the accumulated depreciation on equipment is $280,000.

e. The $6,600 cash payment of interest represents the 1% monthly expense on a bank loan of $660,000.

f. Income taxes payable on July 31 are $30,720, and the income tax rate is 30%.

g. The only other balance sheet accounts are: Common Stock, with a balance of $600,000 on June 30; and Retained Earnings, with a balance of $964,000 on June 30.

The budgeted income statement and the budgeted balance sheet for Acco Company will be made after adjusting the balances of additional information.

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Step by Step Solution

Budgeted income statement

Acco Company

Budgeted income statement

For the month of July

Particulars

Amount

Sales

$1,400,000

Cost of goods sold

$770,000

Gross profit

$630,000

Operating expenses:

Salaries

$285,000

Depreciation

$36,000

Other cash expenses

$200,000

Bank loan interest

$6,600

Total operating expenses

$527,600

Income before income taxes

$102,400

Income tax expense

$30,720

Net Income

$71,680

Budgeted balance sheet

Acco Company

Budgeted balance sheet

For the month of July

Assets

Amount

Cash

$122,400

Accounts receivables

$1,220,000

Inventory

$60,000

Total current assets

$1,402,000

Equipment

$1,600,000

Accumulated depreciation

$316,000

Net equipment

$1,284,000

Total assets

$2,686,400

Liabilities and Equity

Amount

Liabilities

Accounts payable

$300,000

Salaries payable

$60,000

Income taxes payable

$30,720

Total current liabilities

$390,720

Bank loan payable

$660,000

Total liabilities

$1,050,720

Stockholder’s Equity

Common stock

$600,000

Retained earnings

$1,035,680

Total stockholder’s equity

$1,635,680

Total liabilities and equity

$2,686,400

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