Case 8-33 Master Budget with Supporting Schedules [LO8-2, LO8-4, L8-8, LO8-9, LO8-101 You have just beeh hired as a new management trainee by Earrings Unlimited, a distributor of earrings to vartous retall outlets located in shopping malls across the country. In the past, the company has done very Iittle in the way of budgeting and at certaln times of the year has expeienced 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 combany sells many styles of earrings, but all are sold for the same price-$16 per pair. Actual sales of earrings for the last three month and budgeted sales for the next stx months follow (In pairs of earrings Danuary (actual) February (actual) March (actual) Apri1 (budget) May (budget) June (budget) 22,4ee 52,400 32,40e 28,400 July (budget) August (budget) September (budget) 42,400 67,4ee 102,4ee e,400 27,4ee The concentration of sales before and during May is due to Mother's Day. Suffictent 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 $5.20 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 sale. 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: Sales comnissions 4X of sales Advertising S32e, eee Mo-ithly operating experses for the company are given below: Variable: Sales coemissdons Fixed: Advertising Rent 4% of sales $ 32e, eee $30,eee Salarier uilitzes Insurghce Depreciation $ 130,eee 13,ee0 4,200 26,eee Insrance is paid on an annual basis, In November of each year The company plans to purchase $22,000 in new equipment during May and $52.000 in new equlpment during June: both purchases will be for cash. The company declares dividends of $24,000 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 86,00 Accounts receivable ($45,440 February sales; $542,72e March sales) 588,160 14e,192 27.e00 1,e7e, eee Inventory Prepaid insurance Property and equipeent (net) Yotal assets $ 1,911, 352 Liabilities and Stockholders' Equity Accounts payable Dividends payable 112,eee 24,0e0 Conmon stock Retained earnings 1,ese, eee 735, 352 Total liabilities and stockholders equity $ 1,911, 352 1 of 1 Prey Next e g The companymaintains a mnimum cash balance of $62,000 Al borrowtng is done at the beginning of a month, anyrepayments are made at the endiof a month The company has an agreement with a bank that allows the company to borrow in Increments of $1.000 at the begirhing of each month, The initerst rate on these loans Is 1% per month and for stmplicity we will assume that interest is not'compounded At the end of the quarterthe company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in ncrements of $1000). While still retaining at least $62.000 In cash. Required: Prepare master budget for the three-month period ending June 30 include the following detailed schedules wwes A cash budget Show the budget by month and in tOtal Determine any barrowing that would be needed to maintain the minimum Cash balance of $62.000 A buogeted income statement for the three month pertod ending June 30 Use the contrioution approsch NA budgeted baiance sneet os of June 30 Complete this question by entering your answers in the tabs belaw. Req 1A Req 1E Req 1C Rea 1D Req 2 Req 3 Req 4 Prepare a master budget for the three-month period ending June 30 that includes a budgeted balance sheet as of June 30. Earrings Unlimited Budgeted Balance Sheet June 30 Assets