University:
Baltimore City Community College
Course:
ACT 221 | Principles of Financial Accounting I
Academic year:

2024
Views:

191

Pages:

3
Author:

Danny A.

Financial Statements The final step in the construction of the master budget is the preparation of the budgeted financial statements. Budgeted financial statements are also termed pro forma financial statements. The forecasted income statement presents the results of operations and is used as a comparison to actual results in evaluating performance. Lewis Corporation's forecasted income statement is illustrated in Exhibit. Two items in Lewis Corporation's budgeted income statement, cost of goods manufactured and interest expense, require additional discus-sion. The company's cost of goods manufactured comprises the total unit costs for raw materials, direct labor, variable factory overhead, and fixed factory overhead. These costs are: The interest expense disclosed on the forecasted income statement is based on the interest actually paid on the $5,000 loan repaid on March 31, 1992, plus the accrued interest on the additional $35,000 still owed. That is, the company borrowed $40,000 on January 1, 1992, and repaid $5,000 on March 31, 1992. The company paid interest expense of $150 on March 31, 1992, and has incurred an additional $1,050 of interest expense on the $35,000 owed on March 31, 1992 ($35,000 x 0.12 x 3/12). As a result, Lewis Corporation's total interest expense for the first quarter of 1992 is $1,200. The forecasted balance sheet is prepared by combining the information contained in the beginning balance sheet with the information contained in the other budgets. Lewis Corporation's forecasted balance sheet is illustrated in Exhibit . Several items on the company's forecasted balance sheet require further explanation. The $105,000 balance in accounts receivable results from the 30 percent of March 1992 sales that remained uncollected at the end of the quarter (see Exhibit 16 4). The raw materials ending inventory is calculated by multiplying the desired unit ending inventory of 24,900 by the unit cost of $3. The finished goods ending inventory is determined by multiplying the desired ending inventory of 9,500 units by the unit cost of $14. The accumulated depreciation is found by adding the beginning accumulated depreciation balance of $25,000 disclosed on Lewis Corporation's December 31, 1991, balance sheet and the depreciation expense incurred for the quarter of $10,500 (see Exhibit 16-9). The accounts payable balance of $47,400 is 40 percent of the March purchases of $118,500 that remained unpaid at the end of the month (see Exhibit 167). The notes payable is the $35,000 balance of the $40,000 loan that remained unpaid on March 31, 1992; the accrued interest payable is based on the unpaid loan balance of $35,000 and is computed $35,000 × 0.12 × 3/12. Finally, the Retained Earnings balance is calculated: