The Cold Mountain Furnace Company is a retail store with locations across the eastern United States. The

Question:

The Cold Mountain Furnace Company is a retail store with locations across the eastern United States. The company’s income statement for its first year of operations ended December 31, 2009 and its balance sheet as of December 31, 2009 are shown here:

INCOME STATEMENT

Sales ..........................$4,000,000

Less cost of sales ..................... 2,300,000

Gross margin ....................... 1,700,000

Less selling, general, and administrative costs .......... $ 800,000

Income before taxes ................... 900,000

Less income taxes ....................$ 360,000

Net income .......................$ 540,000

BALANCE SHEET

Cash ............................ $ 300,000

Accounts receivable ...................... 150,000

Inventory .......................... 400,000

Property, plant, and equipment (net of accumulated depreciation) ... $ 200,000

Total assets ......................... 1,050,000

Accounts payable ....................... 110,000

Retained earnings ....................... 540,000

Common stock ........................$ 400,000

Total liabilities and owner’s equity ...............$1,050,000

Additional information for 2010 is as follows:

SALES BUDGET (BUDGETED SALES) FOR 2010

First quarter ..............$1,050,000

Second quarter .............$1,100,000

Third quarter ...............$1,150,000

Fourth quarter .............$1,100,000

b. Sales are collected in two portions, consisting of 85 percent in the quarter of the sale and 15 percent in the quarter following the sale. All of the accounts receivable as of December 31, 2009, relate to sales in the fourth quarter of 2009.

c. The cost of sales is expected to increase to 60 percent of sales in 2010. Inventory is purchased in the quarter of expected sale. Eighty percent of inventory purchases are paid for in the quarter of purchase and 20 percent are paid for in the quarter following purchase.

d. The accounts payable balance as of December 31, 2009, relates to inventory purchases made in the fourth quarter of 2009.

e. Selling, general, and administrative costs are expected to increase to $225,000 per quarter in 2010. Of this quarterly amount, $10,000 is depreciation expense of the property, plant, and equipment.

f. The inventory balance at the end of 2010 is $400,000.

g. The company’s tax rate is expected to be 40 percent.

Required

A. Prepare a budgeted income statement for 2010.

B. Prepare a budgeted balance sheet as of December 31, 2010.

Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...