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7. Preparing a cash budget

Brock and Sam started to create a budget (based on last year’s income and expense statement) but got stuck. They know that you have learned how to create budgets and are asking for your help. They would like you to input the correct values for the first three months of next year.

Income and Expense Statement

Name(s): Brock and Sam Wilson
For the year ending: As of December 31
Wages and salaries Name: Brock Wilson $ 20,000
Name: Sam Wilson 18,000
Bonuses and commissions Brock’s bonus 2,000
(1) Total Income: $40,000
Housing $5,400
Utilities Central Maine Power 600
T-Mobile 300
Food Groceries 1,080
Transportation Auto loan 4,320
Public transportation 2,400
Insurance 900
Taxes 9,500
Fun money Cruise to Mexico 2,500
Parents’ loan 700
(2) Total Expenses: $27,700
Surplus (Deficit): $12,300

In addition to the statement, you will need to know the following information:

They estimated their net annual income (after taxes and employer deductions) at $15,000 for Brock and $13,500 for Sam
Insurance is paid at the end of each calendar quarter
Sam purchases her commuter pass on the first of each month
The parents’ loan is money they borrowed from Sam’s parents to pay off their student loans. How much they pay each month is determined by them
The fun money listed on the statement is the money spent for a cruise to Mexico. They didn’t keep track of any other entertainment expenses (such as dinners out and movies) incurred during the year.

Note: Enter a value in each blank cell to get full credit for this exercise, and round all dollar amounts to the nearest whole dollar.

Three-Month Cash Budget (By Month)

Name(s): Brock and Sam Wilson
For: Three months Ending: March 31
January February March Total for Three Months
Brock’s salary
Sam’s salary
Total income
Central Maine Power
Public transportation
Parents’ loan
Fun money
Total expenses
Cash surplus (deficit)
Cumulative surplus (deficit)

Looking at the completed budget, what single item would you recommend that they add to their budget?

Dividend and interest income

Pensions and annuities

Savings and investments

This is because:

The couple needs to budget for contingencies and save for future goals.

The couple needs to increase their taxable income.

The couple needs to increase their distributions from their retirement plans.

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