Essay about Preparing a Master Budget

686 Words3 Pages
Week Five Individual Assignment
Jonathan Scott

7-A1) Preparing a Master Budget

You are the new manager of the Betterbuy Electronics store in the Mall of America. Top management of Betterbuy Electronics is convinced that management training should include the active participation of store managers in the budgeting process. You have been asked to prepare a complete master budget for your store for June, July, and August. All accounting is done centrally so you have no expert help on the premises. In addition, tomorrow the branch manager and the assistant controller will be here to examine your work; at that time, they will assist you in formulating the final budget document. The idea is to have you prepare the initial
…show more content…
Interest is compounded and added to the outstanding balance each month, but interest is paid only at the ends of months when principal is repaid. The interest rate is 10% per annum; round interest computations and interest payments to the nearest dollar. Interest payments may be any dollar amount, but all borrowing and repayments of principal are made in multiples of $1,000.

1. Prepare a budgeted income statement for the coming June through August quarter, a cash budget (for each of the next three months), and a budgeted balance sheet for August 31, 20X8. All operations are evaluated on a before-income-tax basis, so income taxes may be ignored here.


2. Explain why there is a need for a bank loan and what operating sources supply cash for repaying the bank loan.

The main reason for the bank loan relates to June’s unique sales figures. To get enough volume to cover the projected June sales, the inventory had to be greatly expanded. This meant large inventory purchases all at once. Without enough cash on hand to pay for the inventory, a notes payable was the only solution. The lack of cash came from the fact that June’s sales are so radically different from the ones that came before it. Even with the minimum inventory amount gotten from the previous month, the huge jump in sales for the month of June could not be

More about Essay about Preparing a Master Budget

Get Access