P9-6A Krause Industries’ balance sheet at December 31, 2013, is presented below.

Krause Industries Balance Sheet December 31, 2013

Assets

Current assets

 

Property, plant, and equipment

 

  

Liabilities

Liabilities and Stockholders’ Equity

Additional information accumulated for the budgeting process is as  follows.

Budgeted data for the year 2014 include the following.

Year

 

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 $18. Krause 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 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 quar- ter. 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

$9,000. 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, 2014, include amounts due suppliers (see above) plus other accounts payable of $6,500. In 2014, the company expects to declare and pay an $8,000 cash dividend. Unpaid income

taxes at December 31 will be $5,000. The company’s cash budget shows an expected cash balance of $6,980 at December 31, 2014.

Instructions

Prepare a budgeted income statement for 2014 and a budgeted balance sheet at Decem- ber 31, 2014. In preparing the income statement, you will need to compute cost of goods manufactured (direct materials 1 direct labor 1 manufacturing overhead) and finished goods inventory (December 31, 2014).

PROBLEMS: SET B

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