Question
Earring Corp. is a manufacturer of earrings. You have been hired as a new management trainee of the company. In the past, the company has
Earring Corp. is a manufacturer of earrings. You have been hired as a new management trainee of the company. In the past, the company has done very little in 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 year. You have gathered the beginning balance sheet and the necessary assumptions for you to create the budget. The company has an agreement with a bank that allows the company to borrow in increments of $10,000 at the beginning of each quarter. The interest is 2% per quarter and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accumulated interest for the quarter on the loan and as much of the loan as possible (in increments of $10,000), while still retaining at least $40,000 in cash. Insurance for the whole year will be paid in January. Prepare the master budget for the year 2017.
Please explain and identify each equation.
Thanks
Earrings Corp. Balance Sheet December 31, 2016 Assets Current assets $48,000 224,000 120,000 Accounts receivable Raw materials inventory (240,000 grams of silver Finished goods inventory (48,000 pairs of earrings) Total current assets Plant and equipment Land Buildings and equipment Accumulated depreciation Total Plant and equipment, net Total assets $872,000 50,000 370,000 Liabilities and Stockholders' Equity Current liabilities: Accounts pay able Stockholders' equity: Common stock Retained eamings Total stockholders' equity Total liabilities and stockholders' equity $93,000 $700,000 449 S1242000Step by Step Solution
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