**Company Balance Sheet as of March 31****Assets**- **Cash**: $80,000- **Accounts receivable**: $570,880 ($43,520 February sales; $527,360 March sales)- **Inventory**: $121,808- **Prepaid insurance**: $24,000- **Property and equipment (net)**: $1,210,000- **Total assets**: $1,006,688**Liabilities and Stockholders’ Equity**- **Accounts payable**: $106,000- **Dividends payable**: $19,500- **Common stock**: $120,000- **Retained earnings**: $761,188- **Total liabilities and stockholders' equity**: $1,006,688**Additional Information:**- The company maintains a minimum cash balance of $56,000.- All borrowing is done at the beginning of a month; any repayments are made at the end of the month.- The company has an agreement with a bank to borrow in increments of $1,000 at the beginning of each month.- The interest rate on these loans is 1% per month; for simplicity, interest is not compounded.- At the end of the quarter, the company will pay back the bank all accumulated interest and as much of the loan principal as possible in $1,000 increments, while maintaining at least $56,000 in cash.**Required:**Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:1. **Sales Budget** - By month - In total2. **Schedule of Expected Cash Collections** - By month - In total3. **Merchandise Purchases Budget** - In units - In dollars - By month - In total4. **Schedule of Expected Cash Disbursements for Merchandise Purchases** - By month - In total5. **Cash Budget** - By month - In total - Determine any borrowing needed to maintain the minimum cash balance of $56,0006. **Budgeted Income Statement** for the three-month period ending June 30 using the contribution approach.7. **Budgeted Balance Sheet** as of June 30. ### Case Study: Budgeting for Earnings Unlimited#### IntroductionYou have just been hired as a new management trainee by Earnings 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.#### Sales DataThe company sells many styles of earrings, but all are sold for the same price—$16 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):| Month | Sales (pairs) ||---------------|---------------|| January (actual) | 21,200 || February (actual) | 27,200 || March (actual) | 41,200 || April (budget) | 66,200 || May (budget) | 101,200 || June (budget) | 51,200 || July (budget) | 31,200 || August (budget) | 29,200 || September (budget)| 26,200 |#### Inventory ManagementThe 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.#### Supplier Payments and Sales CollectionSuppliers are paid $4.60 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 ExpensesMonthly operating expenses for the company are given below:- **Variable:** - Sales commissions: 4% of sales- **Fixed:** - Advertising: $260,000 - Rent: $24,000 - Salaries:

Budgeted Sales = Budgeted sales units * selling price per unitBudgeted merchandise purchase units =…

The company's balance sheet as of March 31 is given below: Assets Cash Accounts receivable ($43,520 February sales; $527,360 March sales) Inventory Prepaid insurance Property and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Dividends payable Common stock Retained earnings Total liabilities and stockholders' equity $ 80,000 570,880 121,808 24,000 1,010,000 $ 1,806,688 $ 106,000 19,500 920,000 761,188 $ 1,806,688 The company maintains a minimum cash balance of $56,000. All borrowing is done at the beginning of a month; any repayments are nade 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 that 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 ncrements of $1,000), while still retaining at least $56,000 in cash. Required: Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules: 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 dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum ash balance of $56,000. . A budgeted income statement for the three-month period ending June 30. Use the contribution approach. - A budgeted balance sheet as of June 30.

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter3: Financial Statements, Tools, And Budgets

Section: Chapter Questions

Problem 4FPC