Answer Questions 2-4

Cash Budget, Income Statement, Balance Sheet

52,800 You have just been hired as a new management trainee by Earrings Unlimited a distributor of earrings to various retail outlets located In shopping malls across the country in the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below The company sells many styles of earrings but all are sold for the same price-s18 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings) January (actual) 22,800 June (budget) February (actual) 28,800 July (budget) 32,800 March (actual) 42,800 August (budget) 30,800 April (budget) 67,800 September (budget) 27,800 May (budget) 102,800 The concentration of sales before and during May is due to Mother's Day, Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month Suppliers are paid $5.40 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase, the other half is paid for in the following month All sales are on credit Only 20% of a month's sales are collected in the month of solo. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible Monthly operating expenses for the company are given below: Variable: 4% of sales Fixed: Advertising $ 340,000 Salaries $ 134,000 Utlos Insurance Depreciation Sales commissions Rent $32,000 $ 14,000 $ 4,400 $ 28,800 Incurano inalni nn an annual hasis in Nowemhernfeachwear Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $ 340,000 $ 32,eee S 134,000 $ 14,000 $ 4,400 $ 28,00 02 Insurance is paid on an annual basis. In November of each year. The company plans to purchase $23,000 in new equipment during May and $54.000 in new equipment during June, both purchases will be for cash. The company declares dividends of $25,500 each quarter, payable in the first month of the following quarter The company's balance sheet as of March 31 is given below. Assets Cash $ 88,000 Accounts receivable ($51,848 February, sales; $616, 328 March sales) 665, 160 Inventory 146,448 Prepaid Insurance 25,00 Property and equipment (net) 1,000,000 Total assets $ 2,020,608 Liabilities and Stockholders' Equity Accounts payable $ 114,000 Dividends payable 25,500 Common stock 1,050,000 Retained earnings hos, 10 Total abilities and stockholders' equity 32,020,60% The company maintains a minimum cash balance of $64,000. All borrowing is done at the beginning of a month any repayments are made at the end of a month The company has an agreement with a bank that allows the company to borrow in increments of $1.000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible in increments of $1,000), while still retaining at least $64.000 in cash Total assets $ 2,028,688 Liabilities and Stockholders' Equity Accounts payable $ 114,000 Dividends payable 25,500 Common stock 1,080,000 Retained earnings 881, 108 Total liabilities and stockholders' equity $ 2,028,608 The company maintains a minimum cash balance of $64.000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible in increments of $1,000) while still retaining at least $64,000 in cash. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 1. a. A sales budget, by month and in total b. A schedule of expected cash collections, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total d. A schedule of expected cash disbursements for merchandise purchases, by month and in total 2. A cash budget Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $64,000. 3. A budgeted Income statement for the three month period ending June 30. Use the contribution approach 4. A budgeted balance sheet as of June 30 Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 10 Reg 10 Reg 2 Req3 Req" Prepare a master budoet for the three-month period endina June 30 that includes a cash hudent Show the huner by month May June Quarter 0 0 0 0 0 0 Earrings Unlimited Cash Budget For the Three Months Ending June 30 April Beginning cash balance Add collections from customers Total cash available Loss cash disbursements: Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends pald Total cash disbursements 0 O Excess (deficiency) of cash available over disbursements Financing Borrowings Repayments Interest Total financing $ s Ending cash balance o oo 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OO $ $ 0 $ 0 0 Earrings Unlimited Budgeted Income Statement For the Three Months Ended June 30 Sales Variable expenses Beginning merchandise inventory Purchases Ending merchandise inventory 0 0 Fixed expenses 0 0 0 Earrings Unlimited Budgeted Balance Sheet June 30 Assets Total assets S Liabilities and Stockholders' Equity $ 0 Total liabilities and stockholders' equity