You have just been hired as a new management trainee by EarringsUnlimited, a distributor of earrings to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash.

   

Since you are well trained in budgeting, you have decided toprepare comprehensive budgets for the upcoming second quarter inorder to show management the benefits that can be gained from anintegrated budgeting program. To this end, you have worked withaccounting and other areas to gather the information assembledbelow.

   

The company sells many styles of earrings, but all are sold forthe same price—$14 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):

   

January (actual)	20,900	June (budget)	50,900
February (actual)	26,900	July (budget)	30,900
March (actual)	40,900	August (budget)	28,900
April (budget)	65,900	September (budget)	25,900
May (budget)	100,900

   

The concentration of sales before and during May is due toMother's Day. Sufficient inventory should be on hand at the end ofeach month to supply 30% of the earrings sold in the followingmonth.

   

Suppliers are paid $8 for a pair of earrings. One-half of amonth's purchases is paid for in the month of purchase; the otherhalf is paid for in the following month. All sales are on credit,with no discount, and payable within 15 days. The company hasfound, however, that only 20% of a month's sales are collected inthe month of sale. An additional 60% is collected in the followingmonth, and the remaining 20% is collected in the second monthfollowing sale. Bad debts have been negligible.

Monthly operating expenses for the company are givenbelow:

   

Variable:
Sales commissions	4	% of sales
Fixed:
Advertising	$	199,100
Rent	$	17,100
Salaries	$	105,100
Utilities	$	6,100
Insurance	$	2,100
Depreciation	$	13,100

    

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

The company plans to purchase $15,300 in new equipment duringMay and $39,100 in new equipment during June; both purchases willbe for cash. The company declares dividends of $10,500 eachquarter, payable in the first month of the following quarter.

A listing of the company's ledger accounts as of March 31 isgiven below:

    

Assets			Liabilities and Stockholders'Equity
Cash	$	150,000	Accounts payable	$	193,600
Accounts receivable ($75,320 February      sales; $458,080 March sales)		533,400	Dividends payable		10,500
Inventory		158,160	Capital stock		890,000
Prepaid insurance		21,900	Retained earnings		589,000
Property and equipment (net)		819,640
Total assets	$	1,683,100	Total liabilities and stockholders' equity	$	1,683,100

   

The company maintains a minimum cash balance of $30,000. Allborrowing 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 allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $30,000 incash.

Prepare a master budget for the three-month period ending June30. Include the following detailed budgets: Requirement 3: A budgeted income statement for the three-month period endingJune 30. Use the contribution approach. (Input the amountas positive value. Omit the "$" sign in yourresponse.)       EARRINGS UNLIMITED Budgeted Income Statement For the Three Months Ended June 30   (Click to select)CommissionsDividendspayableAccounts payableCost of goods soldRetainedearningsCashSalesAccounts receivable $      Variable expenses:      (Click toselect)DepreciationCommissionsRentSalariesUtilitiesAdvertisingInsuranceCostof goods sold $         (Click to select)InsuranceCost ofgoodssoldSalariesAdvertisingCommissionsUtilitiesRentDepreciation         Contribution margin      Fixed expenses:      (Click to select)Cost of goodssoldInsuranceAdvertisingRentCommissionsSalariesUtilitiesDepreciation         (Click toselect)CommissionsUtilitiesSalariesDepreciationInsuranceCost ofgoods soldRentAdvertising         (Click toselect)SalariesInsuranceAdvertisingRentCost of goodssoldCommissionsUtilitiesDepreciation         (Click toselect)AdvertisingSalariesRentCommissionsInsuranceUtilitiesCost ofgoods soldDepreciation         (Click toselect)DepreciationRentSalariesUtilitiesInsuranceCost of goodssoldAdvertisingCommissions         (Click toselect)UtilitiesInsuranceSalariesCommissionsAdvertisingCost ofgoods soldRentDepreciation         (Click to select)Net operating incomeNet operatingloss      (Click to select)AddLess: (Click toselect)SalariesRentInterest expenseSalescommissionsDepreciationInsurancePrepaid insuranceUtilities      (Click to select)Net incomeNet loss $         Requirement 4: A budgeted balance sheet as of June 30. (Omit the "$"sign in your response.)       EARRINGS UNLIMITED Budgeted Balance Sheet June 30   Assets   Liabilities and Stockholders'Equity   (Click to select)Capital stockAccounts payablepurchasesCashDividends payableRetained earnings $      (Click to select)Property and equipment,netCashInventoryAccounts payable purchasesAccounts receivable $      (Click to select)Capital stockRetainedearningsDividends payableAccounts receivableAccounts payablepurchases      (Click to select)CashAccounts receivableDividendspayableProperty and equipment, netInventory      (Click to select)Accounts payable purchasesCapitalstockRetained earningsDividends payableInventory      (Click to select)CashPrepaid insuranceCapitalstockProperty and equipment, netInventory      (Click to select)Prepaid insuranceAccounts payablepurchasesDividends payableCapital stockRetained earnings      (Click to select)Property and equipment,netCashInventoryRetained earningsPrepaid insurance      (Click to select)Retained earningsAccounts payablepurchasesCapital stockDividends payableProperty and equipment,net         Total assets $      Total liabilities and Stockholders'equity $