Page 894 - Accounting Principles (A Business Perspective)

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now passed, and the materials inventory is reduced at the end of the first quarter to the normal planned level. In
Exhibit 183, we calculated the planned ending finished goods inventories.
Leed Company
Planned materials purchases
and inventories
Quarter Ending
2010 March 31 2010 June 30
Planned usage (25,000 x $2) (per Exhibit 183) $50,000 $50,000
Planned ending inventory (½ x 25,000 x2) 25,000 25,000
(per discussion in text)
Planned materials available for use $ 75,000 $75,000
Inventory at beginning of quarter 40,000* 25,000
Planned purchases for the quarter $35,000 $50,000
*Actual on January 1
Exhibit 190: Leed Company: Planned materials purchases and inventories
Accounts affected by operating costs Leed's management would prepare individual schedules for each of
the accounts affected by operating costs. For illustrative purposes, however, we prepare a schedule that combines
all the accounts affected by materials purchases or operating costs. We assume that:
• All purchases of materials are made on account.
• Direct labor incurred is credited to Accrued Liabilities Payable.
• Manufacturing overhead incurred is credited to the following accounts:

Quarter Ending
March 31 June 30
Accounts payable $ 16,000 $ 13,000
Accrued liabilities payable 60,000 64,000
Prepaid expenses 6,000 5,000
Accumulated depreciation – Building 5,000 5,000
Accumulated depreciation – Equipment 13,000 13,000
Total $100,000 $100,000
• Selling and administrative expenses incurred are credited to the following accounts:
Quarter Ending
March 31June 30
Accounts payable $ 5,000 $ 10,000
Accrued liabilities payable 130,000 154,000
Prepaid expenses 2,000 3,000
Accumulated depreciation – Building 1,000 1,000
Accumulated depreciation – Equipment 2,000 2,000
Total $140,000 $170,000
• Planned cash payments are as follows:
Quarter Ending
March 31 June 30
Accounts payable $ 80,000 $ 56,000
Accrued liabilities payable 330,000 354,000
Prepaid expenses -0- 10,000
Total $410,000 $420,000
Exhibit 191, shows analyses of the accounts credited as a result of these data. The illustration provides a
considerable amount of information needed in constructing financial budgets for the quarters ended 2010 March
31, and 2010 June 30. The balances on both dates for Accounts Payable, Accrued Liabilities Payable, Prepaid
Expenses (the only debit balance account shown), Accumulated Depreciation—Building, and Accumulated
Depreciation—Equipment are computed in the schedule.
Income taxes payable A separate schedule could be prepared showing the changes in the state and federal
Income Taxes Payable account, but in this example, a brief discussion suffices. Balances reported in the financial
budgets assume that Leed pays one-half of the USD 100,000 liability in the 2009 December 31, balance sheet in

Accounting Principles: A Business Perspective 895 A Global Text