Budgeted selling and administrative expenses for Cruise Tire Company in P7-2 for the year ended December 31, 2011, were as follows:

Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $942,000

Office rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000

Office salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821,000

Office supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,500

Officers’ salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .661,000

Sales salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 868,000

Telephone and fax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,500

Travel expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,000

Required:

1. Prepare a selling and administrative expenses budget, in good form, for the year 2011.

2. Using the information above and the budgets prepared in P7- 2, prepare a budgeted income statement for the year 2011, assuming an income tax rate of 40%.