Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

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 comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. 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):

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 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, with no discount, and payable within 15 days. The company has found, however, that 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 expenses for the company are given below:

Insurance is paid on an annual basis, in November 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.
A listing of the company's ledger accounts as of March 31 is given below:

The company maintains a minimum cash balance of $50,000. 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 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 increments of $1,000), while still retaining at least $50,000 in cash.
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
(1c) April purchases: 79,000 units
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
2. 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. (Check point: June 30 cash balance: $94,700)
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.


Given Data

EARRINGS UNLIMITED

Minimum ending cash balance $50,000
Selling price $10

Recent and forecast sales:
January (actual) $ 20,000
February (actual) $ 26,000
March (actual) $ 40,000
April $ 65,000
May $ 100,000
June $ 50,000
July $ 30,000
August $ 28,000
September $ 25,000

Desired ending inventories (percentage 40%
of next month's sales)
Cost of earrings $ 4

Purchases paid as follows:
In month of purchase 50%
In following month 50%

Collection on sales:
Sales collected current month 20%
Sales collected following month 70%
Sales collected 2nd month following 10%

Variable monthly expenses:
Sales commissions (% of sales) 4%

Fixed monthly expenses:
Advertising $ 200,000
Rent $ 18,000
Salaries $ 106,000
Utilities $ 7,000
Insurance (12 months paid in November) $ 3,000
Depreciation $ 14,000

Equipment purchased in May $ 16,000
Equipment purchased in June $ 40,000
Dividends declared each quarter $ 15,000

Balance sheet at March 31:
Assets
Cash $74,000
Accounts receivable 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000

Liabilities and Stockholders' Equity
Accounts payable $100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings 580,000
Total liabilities and stockholders' equity $1,495,000

Agreement with Bank:
Borrowing increments $1,000
Interest rate per month 1%
Repayment increments $1,000
Total of interest paid each quarter 100%
Required minimum cash balance $50,000


Prepare the income statement and balance sheet for this problem..

 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M945116

Have any Question? 


Related Questions in Accounting Basics

Required 1 provide fletchers ceo with an interactive report

Required 1. Provide Fletcher's CEO with an interactive report presenting the sales and profits of SuperDepot for the last four years. Use an interactive visualization software(Power BI) to produce one or more Interactive ...

1it has been suggested that it is not possible to determine

1. It has been suggested that it is not possible to determine the point at which financial accounting and managerial accounting diverge. What does that mean? Your response should be at least 200 words in length. For prob ...

Assignment gaap applicationsinternal controlrecall that in

Assignment: GAAP Applications Internal Control Recall that in Units 2 and 3, you completed the accounting cycle for Dustin Larkin of Quixote Consulting. Quixote Consulting is a part-time consulting business that recently ...

I on 1115 big co acquired 70 of little co for 350000 euros

I) On 1/1/15 Big Co. acquired 70% of Little Co. for 350,000 Euros (€). The fair value of the non-controlling interest on that date was €150,000. Little's book value on that date was €500,000, and all assets and liabiliti ...

Hildebrand consumer products incas you know we have

Hildebrand Consumer Products, Inc. As you know, we have recently experienced stagnant growth. In preparation for my upcoming meeting with the Board of Directors, I am asking you to prepare a formal report that will brief ...

Background of projectthe industry of medical devices

Background of Project The industry of medical devices involves a number of monitoring and reconstructive devices. Some of those devices include cardiac and diabetic care as well as hip and knee replacements. The owners o ...

Problem -the stay healthy medical clinics balance sheet on

Problem - The Stay Healthy Medical Clinic's Balance sheet on December 31, 2014 showed an owner's equity of $1,280,000. The December 31, 2015 balance sheet showed an owner's equity of $1,520,000. During the year, the owne ...

1 which of the following would definitely improve both

1. Which of the following would definitely improve both gross profit as reported in the Income Statement and gross profit margin (assuming cost price per unit stays the same)? A. Selling more units at a higher selling pr ...

Assignmentmemos are one-page 750 word minimum single-spaced

Assignment Memos are one-page (750 word minimum) single-spaced essays (no more than 10 font) and are due in the morning on Blackboard before we discuss assigned readings (a physical copy should also be brought to class). ...

Assignment the apportionmentyou are a census officer in a

Assignment: The Apportionment You are a census officer in a newly democratic nation and you have been charged with using the census data from the table below to determine how 100 congressional seats should be divided amo ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen