W AutoSave O on 203 BUDGET CASE ESY(2) (1) - Protected View . Saved to this PC v Search A Courtney N. Shull CN X File Home Insert Draw Design Layout References Mailings Review View Help Comments Viewing Share PROTECTED VIEW Be careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing X *CASE 3: MASTER BUDGETING Master Budget with Supporting Schedules -2-2 http://ezto.mhedu 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-$10 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) 20,000 June (budget) 50,000 February (actual) 26,000 July (budget) 30,000 March (actual) 40,000 August (budget) 28,000 April (budget) 65,000 September (budget) 25,000 May (budget) 100,000 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 them amaninmen mold in the falloverion Page 1 of 3 698 words Text Predictions: On [ Focus + 100% 61 F Mostly sunny Q Search 7:17 PM L CC A 4/10/2023 3W AutoSave O on 203 BUDGET CASE ESY(2) (1) - Protected View . Saved to this PC v Search A Courtney N. Shull CN X File Home Insert Draw Design Layout References Mailings Review View Help Comments Viewing Share PROTECTED VIEW Be careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing X the earrings sold in the following month. Suppliers are paid $4 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase and the other half is paid for in the following month. All sales are on credit. Only 10% of a month's sales are collected in the month of sale, 70% is collected in the following month, and the remaining 20% is collected in the second month following sale. Bad debts have been negligible. The customers also get 1% discount for any amount paid within the same month. Monthly operating expenses for the company are given below: Variable: Sales commissions 4% of sales Fixed: Advertising $ 200,000 Rent $ 18,000 Page 1 of 3 698 words Text Predictions: On [ Focus + 100% 61 F Mostly sunny Q Search (DELL 7:17 PM W A 4/10/2023 3W AutoSave O on 203 BUDGET CASE ESY(2) (1) - Protected View . Saved to this PC v Search A Courtney N. Shull CN X File Home Insert Draw Design Layout References Mailings Review View Help Comments Viewing Share PROTECTED VIEW Be careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing X Fixed: Advertising $200,000 Rent $ 18,000 Salaries $ 106,000 Utilities $ 7,000 Insurance 3,000 Depreciation $ 14,000 Insurance is paid on an annual basis, on July 1st of each year. The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 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 $ 150,000 Accounts receivable 412,000 Inventory 104,000 Prepaid insurance 21,000 Property and equipment (net) 808,000 Total assets $1,495,000 Liabilities and Stockholders' Equity Page 2 of 3 698 words Text Predictions: On [ Focus + 100% 61 F Q Search L 7:18 PM W Mostly sunny A 4/10/2023 3W AutoSave O on 203 BUDGET CASE ESY(2) (1) - Protected View . Saved to this PC v Search A Courtney N. Shull CN X File Home Insert Draw Design Layout References Mailings Review View Help Comments Viewing Share PROTECTED VIEW Be careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing X Liabilities and Stockholders' Equity Accounts payable $ 100,000 Dividends payable 15,000 Common stock 800,000 Retained earnings 580,000 Total liabilities and stockholders' equity $1,495,000 The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments of the loan and outstanding interest are made at the end of a month while retaining the minimum balance of $50,000. 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 Page 2 of 3 698 words Text Predictions: On [ Focus + 100% 61 F A Mostly sunny Q Search 7:18 PM L 4/10/2023 3W AutoSave O Off H 203 BUDGET CASE ESY(2) (1) - Protected View . Saved to this PC v Search A Courtney N. Shull CN X File Home Insert Draw Design Layout References Mailings Review View Help Comments Viewing Share 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 The company's income tax rate is 30%. The income tax for 2nd quarter will be paid in the following quarter. Required: Prepare a master budget for the second quarter period ending June 30. Include the following detailed schedules: 1. A sales budget, by month and in total. 2. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. 3. A schedule of expected cash collections, by month and in total. 4. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 5. A schedule of expected cash disbursements for other items. 6. 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 $50,000. 7. A budgeted income statement for the three-month period ending June 30. Use Page 3 of 3 698 words Text Predictions: On [ Focus + 100% 61 F A Mostly sunny Q Search L 7:19 PM 4/10/2023 3W AutoSave O Off H 203 BUDGET CASE ESY(2) (1) - Protected View . Saved to this PC v Search A Courtney N. Shull CN X File Home Insert Draw Design Layout References Mailings Review View Help Comments Viewing Share mugs month and in total. 3. A schedule of expected cash collections, by month and in total. 4. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 5. A schedule of expected cash disbursements for other items. 6. 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 $50,000. 7. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. 8. A budgeted balance sheet as of June 30 9. List and explain some ways the company can improve its cash flows so that they avoid borrowing. Page 3 of 3 698 words Text Predictions: On [ Focus + 100% 61 F Mostly sunny Q Search ( DELL W 7:19 PM 1) O 4/10/2023 3