Question

The Cold Mountain Furnace Company is a retail store with locations across the eastern United States. The company’s income statement for its first year of operations ended December 31, 2009 and its balance sheet as of December 31, 2009 are shown here:
INCOME STATEMENT
Sales .......................... $4,000,000
Less cost of sales ..................... 2,300,000
Gross margin ....................... 1,700,000
Less selling, general, and administrative costs .......... $ 800,000
Income before taxes ................... 900,000
Less income taxes .................... $ 360,000
Net income ....................... $ 540,000
BALANCE SHEET
Cash ............................ $ 300,000
Accounts receivable ...................... 150,000
Inventory .......................... 400,000
Property, plant, and equipment (net of accumulated depreciation) ... $ 200,000
Total assets ......................... 1,050,000
Accounts payable ....................... 110,000
Retained earnings ....................... 540,000
Common stock ........................ $ 400,000
Total liabilities and owner’s equity ............... $1,050,000
Additional information for 2010 is as follows:
a.
SALES BUDGET (BUDGETED SALES) FOR 2010
First quarter .............. $1,050,000
Second quarter ............. $1,100,000
Third quarter ............... $1,150,000
Fourth quarter ............. $1,100,000
b. Sales are collected in two portions, consisting of 85 percent in the quarter of the sale and 15 percent in the quarter following the sale. All of the accounts receivable as of December 31, 2009, relate to sales in the fourth quarter of 2009.
c. The cost of sales is expected to increase to 60 percent of sales in 2010. Inventory is purchased in the quarter of expected sale. Eighty percent of inventory purchases are paid for in the quarter of purchase and 20 percent are paid for in the quarter following purchase.
d. The accounts payable balance as of December 31, 2009, relates to inventory purchases made in the fourth quarter of 2009.
e. Selling, general, and administrative costs are expected to increase to $225,000 per quarter in 2010. Of this quarterly amount, $10,000 is depreciation expense of the property, plant, and equipment.
f. The inventory balance at the end of 2010 is $400,000.
g. The company’s tax rate is expected to be 40 percent.

Required
A. Prepare a budgeted income statement for 2010.
B. Prepare a budgeted balance sheet as of December 31, 2010.



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  • CreatedMarch 11, 2015
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