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 $10,590 cash dividend. The companys 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 $10,530. $13,135 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 $10,060 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 $8,210. Unpaid income taxes at December 31 will be $6,590.

Question 1 Krause Industries' balance sheet at December 31, 2016, is presented below KRAUSE INDUSTRIES Balance Sheet December 31, 2016 Assets Current Assets Cash Accounts receivable Finished goods inventory (1,500 units) $7,500 73,500 24,260 105,260 Total current assets Property, Plant, and Equipment Equipment $40,230 Less: Accumulated depreciation 10,470 29,760 Total assets $135,020 Liabilities and Stockholders' Equity Liabilities Notes payable Accounts payable $25,440 46,840 72,280 Total liabilities Stockholders' Equity $34,740 28,000 Common stock Retained earnings Total stockholders' equity 62,740 Total liabilities and stockholders' equity $135,020 Budgeted data for the year 2017 include the following 2017 Quarter 4 Total Sales budget (8,000 units at $32) Direct materials used Direct labor Manufacturing overhead applied Selling and administrative expenses $76,800 $256,000 62,500 50,900 50,440 75,000 11,570 12,500 10,000 15,150