This question is worth a total of 20 points. SHOW ALL COM…
This question is worth a total of 20 points. SHOW ALL COMPUTATIONS! Donovan Company’s balance sheet as of December 31, Year 1 is provided below: Donovan Company Balance Sheet December 31, Year 1 Assets Cash $ 17,500 Accounts receivable 20,000 Inventory 12,500 Plant and equipment, net of depreciation 150,000 Total assets $ 200,000 Liabilities and Stockholders’ Equity Accounts payable $ 15,000 Notes payable 25,000 Capital stock 100,000 Retained earnings 60,000 Total liabilities and stockholders’ equity $ 200,000 In anticipation of preparing the company’s operating budget for the upcoming period, the company’s accountant has gathered the following information: a) December Year 1 sales were $110,000. Sales are expected to grow at a rate of 8% per month. Half of all sales are for cash and half are on account. b.) Inventory purchases are expected to total $50,000 during January and the inventory account is expected to have a $14,000 balance at January 31, Year 2. All inventory purchases are on account. c.) Selling and administrative expenses for January, Year 2 are budgeted at $30,000 (exclusive of depreciation) plus 10% of sales. S&A expenses are paid in cash. Depreciation is budgeted at $1,500 for the month. d.) The notes payable will be paid in January, Year 2. The amount due will be $25,250. The $250 represents January’s interest expense. e.) The company expects to purchase a new machine during January, Year 2 at a cost of $5,000. Required: Prepare a budgeted income statement for the month of January Year 2. Use the traditional income statement format and ignore income taxes.
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