Bonanza Entertainment began operations in January 2013 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.

The company plans to open a third department in January 2014 that will sell compact discs. Management predicts that the new department will generate $ 300,000 in sales with a 35% gross profit margin and will require the following direct expenses: sales salaries, $ 18,000; advertising, $ 10,000; store supplies, $ 2,000; and equipment depreciation, $ 1,200. The company will fit the new department into the current rented space by taking some square footage from the other two departments. When opened, the new compact disc department will fill one- fourth of the space presently used by the movie department and one- third of the space used by the video game department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the compact disc department to increase total office department expenses by $ 10,000. Since the compact disc department will bring new customers into the store, management expects sales in both the movie and video game departments to increase by 8%. No changes for those departments’ gross profit percents or for their direct expenses are expected, except for store supplies used, which will in-crease in proportion to sales.

Required
Prepare departmental income statements that show the company’s predicted results of operations for calendar year 2014 for the three operating (selling) departments and their combined totals. (Round percents to the nearest one-tenth and dollar amounts to the nearest wholedollar.)

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BONANZA ENTERTAINMENT Departmental Income Statements For Year Ended December 31,2013 Movles Video Games Combinec Cost of goods sold.... Gross profit Direct expenses 420,000 80,000 $800,000 574.000 226,000 154,000 46,000 52,000 8,500 5,000 7,500 83,000 37,000 Store supplies used Depreciation-Equipment Total direct expenses... 4,000 4,500 58,000 15,000 6,000 1,000 3,000 25,000 Allocated expenses 9,000 .620 56.250 18.750 41,000 7.380 50,000 9,000 75,000 34.000 217.000 $9.000 Share of office de partment expenses .······.. Total allocated expenses ..*. ..104.630 162,630 Net income (loss)....17.370 29.370 54.370 (8,370 Total expenses ..x....