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

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$-$$$14$ per pair. Actual sales of earrings for the last three

months and budgeted sales for the next six months follow $($in pairs of earrings$)$

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 $$4\mathrm{.}80$ 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

been negligible.

Monthly operating expenses for the company are given below:

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $$20,000$ in new equipment during May and $$48,000$ in new equipment during June; both purchases

will be for cash. The company declares dividends of $$21,000$ 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

Accounts receivable February sales; $$465,920$ March

sales$)$

Inventory

Prepaid insurance

Property and equipment $($net$)$

Total assets

Liabilities and Stockholders' Equity

Accounts payable

Dividends payable

Retained earnings

Total liabilities and stockholders' equity

The company maintains a minimum cash balance of $$58,000.$ 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 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 $$1,000),$ while still retaining at least $$58,000$ in cash.

Prepare a master budget for the three$-$month period ending June $30$ that includes a budgeted income statement for the three$-$

month period ending June $30.$ Use the contribution approach.

Earrings Unlimited

Budgeted Income Statement

For the Three Months Ended June $30$

Prepare a master budget for the three$-$month period ending June $30$ that includes a budgeted balance sheet as of June $30.$

Total liabilities and stockholders' equity