Managerial Accounting: P23-6A Krause Industries’ balance sheet at December 31

Managerial Accounting
Krause Industries’ balance sheet at December 31, 2016, is presented below.
Krause Industries
Balance Sheet
December 31, 2016
Current Assets
Cash 7,500
Accounts receivable 73,500
Finished goods inventory (1,500 units) 24,000
Total current assets 105,000
Property, Plant and Equipment
Equipment 40,000
Less: Accumulated depreciation 10,000 30,000
Total Assets $135,000

Liabilities and Stockholders' Equity
Current liabilities
Notes payable 25,000
Accounts payable 45,000
Total liabilities 70,000
Stockholders' Equity
Common stock 40,000
Retained earnings 25,000
Total Stockholders' Equity 65,000
Total Liabilities and Stockholders' Equity $135,000

Budgeted data for the year 2017 include the following.
Quarter 4 Total
Sales budget (8,000 units at $32) 76,800 256,000
Direct materials used 17,000 62,500
Direct labor 12,500 50,900
Manufacturing overhead applied 10,000 48,600
Selling and administrative expenses 18,000 75,000

To meet sales requirements and to have 2,500 units of finished goods on hand at December 31, 2017, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. Krause uses the first-in, first-out (FIFO) inventory costing method. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% of income before income taxes. In 2017, the company expects to declare and pay an $8,000 cash dividend.
The company’s cash budget shows an expected cash balance of $5,880 at December 31, 2017. 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 quarter. 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 2017, the company expects to purchase additional equipment costing $9,000. $4,000 of depreciation expense on equipment is included in the budget data and split equally between manufacturing overhead and selling and administrative expenses. Krause expects to pay $8,000 on the outstanding notes payable balance plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2017, includes amounts due suppliers (see above) plus other accounts payable of $7,200. Unpaid income taxes at December 31 will be $5,000

a. Prepare a budgeted income statement for 2017.
b. Prepare a budgeted classified balance sheet at December 31, 2017. (List Current Assets in order of liquidity)
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