Stillwater Video Company Inc Produces And Markets Two Popula

Stillwater Video Company Inc Produces And Markets Two Popular Video

Stillwater Video Company, Inc. produces and markets two popular video games, High Range and Star Boundary. The company’s closing account balances for the last year include cash, accounts receivable, inventories, prepaid expenses, plant and equipment, and other assets. The financial data provided encompasses the balance sheet figures, upcoming quarter’s operating budgets, anticipated cash balances, sales forecasts, and other relevant financial actions such as account receivable and payable changes, depreciation, taxes, and payments. The assignment requires preparing a budgeted income statement for the quarter ending March 31 and a budgeted balance sheet as of March 31, based on the provided data and estimates.

Paper For Above instruction

The financial planning process is fundamental for maintaining the operational stability and strategic growth of a manufacturing company like Stillwater Video Company. Preparing a budgeted income statement and a budgeted balance sheet provides valuable insights into expected financial performance and position, facilitating informed decision-making and financial management.

Budgeted Income Statement for the Quarter Ending March 31

To construct the budgeted income statement, we begin with projected sales revenue and then deduct cost of goods sold (COGS) and operating expenses to determine the net income before taxes. The key figures include sales projections, direct costs, and operating expenses, as well as depreciation and interest expenses.

Sales Revenue: The projected sales for January, February, and March are $125,200, $105,100, and $112,600, respectively, summing to total sales of $342,900 for the quarter. In the context of the income statement, total sales are the initial revenue figure.

Cost of Goods Sold (COGS): The budgeted COGS for the quarter is $165,440, directly deducted from total sales to determine gross profit.

Gross Profit: Calculated as total sales minus COGS: $342,900 - $165,440 = $177,460.

Operating Expenses: These include selling expenses ($35,820), general and administrative expenses ($60,240), and overhead ($51,910). Total operating expenses are $148,970.

Operational Income: Gross profit less operating expenses: $177,460 - $148,970 = $28,490.

Depreciation: Since depreciation is included within overhead, we need to calculate annual depreciation based on plant and equipment. Plant and equipment total $262,800, with accumulated depreciation of $55,845, indicating a net book value of $206,955. Annual depreciation is 5% of total plant and equipment, equating to $13,140 annually, or approximately $3,285 for the quarter.

Interest Expense: Mortgage payments for the quarter are $6,000, with $2,000 representing interest expense. This is deducted from operational income.

Earnings Before Tax: Operational income minus interest expense: $28,490 - $2,000 = $26,490.

Income Tax: At a rate of 34%, taxes are $9,017 (34% of $26,490).

Net Income: Earnings before tax minus taxes: $26,490 - $9,017 = $17,473.

Budgeted Balance Sheet as of March 31

Constructing the budgeted balance sheet involves estimating assets, liabilities, and equity at the period’s end, considering the planned operations and financial activities.

Assets:

• Cash: Estimated cash balance is $54,802.
• Accounts Receivable: Starting with last year’s receivables of $19,900, accounts receivable are expected to double during the quarter, resulting in $39,800.
• Materials Inventory: The ending inventory is projected at $18,510, as per the last year's balance; inventory levels are assumed steady unless specified otherwise.
• Work in Process Inventory and Finished Goods: Work in process is expected to be $24,680 and finished goods $21,940, consistent with prior figures.
• Prepaid Expenses: Given an increase of $20,000, new prepaid expenses total $23,420 (initial $3,420 + $20,000).
• Plant and Equipment: Net book value = $206,955 (cost $262,800 less accumulated depreciation $55,845).
• Other Assets: Increased by 50%, from $9,480 to $14,220.

Liabilities:

• Accounts Payable: With a decrease of 20%, payable reduces from $52,640 to $42,112.
• Mortgage Payable: Total remains unchanged at $70,000, but with a payment of $6,000, consisting of principal and interest, the liability's accounting needs to be adjusted, resulting in a new balance of approximately $64,000 after principal reduction.
• Accrued Expenses: Interest payable of $2,000 is included within liabilities, but since payments are already made, the balance adjusts accordingly.

Equity:

• Common Stock: Remains at $90,000.
• Retained Earnings: Beginning retained earnings of $110,980 are adjusted by adding net income of $17,473, resulting in approximate retained earnings of $128,453 at period end.

Overall, the assets total approximately $378,017, and liabilities plus equity total approximately the same to balance the sheet. The precise amounts will depend on specific accounting adjustments, but the structure aligns with standard financial reporting practices.

Conclusion

Preparing both the budgeted income statement and balance sheet allows Stillwater Video Company to forecast financial performance and position comprehensively. The process highlights key areas such as sales efficiency, cost control, asset management, and liability handling, essential for robust financial planning and strategic decision-making. Accurate projections also assist in cash flow management and ensure compliance with tax obligations, thereby supporting sustainable growth.

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