Prepare a master budget for the three-month period ending June 30 that includes 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 $68,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Case 8-33 (Algo) Master Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets locatedin shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of theyear has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget forthe upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembledbelow.The company sells many styles of earrings, but all are sold for the same price-$17 per pair. Actual sales of earrings for the last threemonths and budgeted sales for the next six months follow (in pairs of earrings):January (actual)February (actual)March (actual)April (budget)May (budget)23, 600 June (budget)29,600 July (budget)43,60068,600103,60053,60033,60031,60028,600August (budget)September (budget)The concentration of sales before and during May is due to Mother's Day. Sufficient inventory should be on hand at the end of eachmonth to supply 40% of the earrings sold in the following month.Suppliers are paid S5.80 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; the other half ispaid for in the following month. All sales are on credit. Only 20% of a month's sales are collected in the month of sale. An additional70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have beennegligible.Monthly operating expenses for the company are given below:Variable:Sales commissions4% of salesF1d:$ 380,00036,000$ 142,000$ 16,000$ 4,800$ 32,000AdvertisingRentSalariesUtilitiesInsuranceDepreciationInsurance is paid on an annual basis, in November of each year.The company plans to purchase $25,000 in new equipment during May and $58,000 in new equipment during June; both purchaseswill be for cash. The company declares dividends of $28,500 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below:AssetsCashAccounts receivale (5, 320 February salesi S592,960Narch sales)InventoryPrepatd inuranceProperty and equipent (ret)159,152Total assetsS 2,a14,43Liabilities and stockholders tquityAecunte payableDlvidends payable110,e0028,5Comon steckRetained carningsTotal llabiltles and stackholdera' cquity247,332S 2,014,43The company maintains a minimum cash balance of $68.000. Al borowing is done at the beginning of a month; any repayments aremade at the end of a month.The company has an agreement with a bank that alows the company to borrow in increments of $1,000 at the beginning of eachmonth. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the endof the quarter the company would pay the bank all of the acumulated interest on the loan and as much of the loan as possible (inincrements of S1,000), whie sil retaining at least $68.000 in cash.Required:Prepere a moster budget for the three-month period ending June 30. Include the following detelled 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 dollers. Show the budget by month and in total.C.d.A schedule of expected cash disbursements for merchandise purchases, by month and in total.2. A cash budger. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimumcash balance of S68.000.3.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.Prepare a master budget for the three-month period ending June 20 that includes a cash budget. Show the budget by monthand in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $68.000. (Cashdeficiency, repaymenta and interest ahould be indicated by a minus sign.)Earrings UnlimitedCash BudgetFor the Three Months Ending June 30AprMayJuneQuarterBeginning cash balanceAdd collections from customersTotal cash availableLess cash disabursementsMerchandise purchasesAdvertisingRentSalariesCommissionsUsitesEquipment purehasesDividends paidTotal cash disbursementsExcess (deficiency) of cash available over diabursementsFinansingBorrowingsRepaymentaInterestTotal finanoingEnding cash balance

Question

Prepare a master budget for the three-month period ending June 30 that includes 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 $68,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.) Case 8-33 (Algo) Master Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets locatedin shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of theyear has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget forthe upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembledbelow.The company sells many styles of earrings, but all are sold for the same price-$17 per pair. Actual sales of earrings for the last threemonths and budgeted sales for the next six months follow (in pairs of earrings):January (actual)February (actual)March (actual)April (budget)May (budget)23, 600 June (budget)29,600 July (budget)43,60068,600103,60053,60033,60031,60028,600August (budget)September (budget)The concentration of sales before and during May is due to Mother's Day. Sufficient inventory should be on hand at the end of eachmonth to supply 40% of the earrings sold in the following month.Suppliers are paid S5.80 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; the other half ispaid for in the following month. All sales are on credit. Only 20% of a month's sales are collected in the month of sale. An additional70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have beennegligible.Monthly operating expenses for the company are given below:Variable:Sales commissions4% of salesF1d:$ 380,00036,000$ 142,000$ 16,000$ 4,800$ 32,000AdvertisingRentSalariesUtilitiesInsuranceDepreciationInsurance is paid on an annual basis, in November of each year.The company plans to purchase $25,000 in new equipment during May and $58,000 in new equipment during June; both purchaseswill be for cash. The company declares dividends of $28,500 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below:AssetsCashAccounts receivale (5, 320 February salesi S592,960Narch sales)InventoryPrepatd inuranceProperty and equipent (ret)159,152Total assetsS 2,a14,43Liabilities and stockholders tquityAecunte payableDlvidends payable110,e0028,5Comon steckRetained carningsTotal llabiltles and stackholdera' cquity247,332S 2,014,43The company maintains a minimum cash balance of $68.000. Al borowing is done at the beginning of a month; any repayments aremade at the end of a month.The company has an agreement with a bank that alows the company to borrow in increments of $1,000 at the beginning of eachmonth. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the endof the quarter the company would pay the bank all of the acumulated interest on the loan and as much of the loan as possible (inincrements of S1,000), whie sil retaining at least $68.000 in cash.Required:Prepere a moster budget for the three-month period ending June 30. Include the following detelled 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 dollers. Show the budget by month and in total.C.d.A schedule of expected cash disbursements for merchandise purchases, by month and in total.2. A cash budger. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimumcash balance of S68.000.3.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.Prepare a master budget for the three-month period ending June 20 that includes a cash budget. Show the budget by monthand in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $68.000. (Cashdeficiency, repaymenta and interest ahould be indicated by a minus sign.)Earrings UnlimitedCash BudgetFor the Three Months Ending June 30AprMayJuneQuarterBeginning cash balanceAdd collections from customersTotal cash availableLess cash disabursementsMerchandise purchasesAdvertisingRentSalariesCommissionsUsitesEquipment purehasesDividends paidTotal cash disbursementsExcess (deficiency) of cash available over diabursementsFinansingBorrowingsRepaymentaInterestTotal finanoingEnding cash balance

Accepted Answer

Answered: Image /qna-images/answer/a94bff28-4849-4a43-bfa2-7dd432c1065f.jpg