Pedro and Lucy started to create a budget (based on last years 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): Pedro and Lucy McDermott
For the year ending:	As of December 31, 20XX
		Dollars
Income
Wages and salaries	Name: Pedro McDermott	$ 21,000
	Name: Lucy McDermott	18,900
Bonuses and commissions	Pedros bonus	2,100
(1) Total Income:		$42,000
Expenses
Housing		$5,400
Utilities	Puget Sound Energy	600
	Verizon	300
Food	Groceries	1,080
Transportation	Auto loan	4,320
	Public transportation	2,400
Insurance		900
Taxes		9,975
Fun money	Cruise to Mexico	2,500
Parents loan		700
(2) Total Expenses:		$28,175
Surplus (Deficit):		$13,825

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 $15,750 for Pedro and $14,175 for Lucy
	Insurance is paid at the end of each calendar quarter
	Lucy purchases her commuter pass on the first of each month
	The parents loan is money they borrowed from Lucys 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 didnt keep track of any other entertainment expenses (such as dinners out and movies) incurred during the year.

Enter a value in each blank cell to get full credit for this exercise, and round all dollar amounts to the nearest whole dollar. Enter any cash deficit with a minus sign.

Three-Month Cash Budget (By Month)
Name(s): Pedro and Lucy McDermott
For: Three months		Ending: March 31, 20XX
	January	February	March	Total for Three Months
Income
Pedros salary	$1,313	1,313
Lucys salary	1,181		1,181
Total income	2,494
Expenses
Rent	450	450
Utilities:
Puget Sound Energy	50		50
Verizon	25	25
Food	90		90
Automobile	360	360
Public transportation	200		200
Insurance	0	0
Parents loan	58		58
Fun money	208	208
Total expenses	1,441		1,666
Cash surplus (deficit)	1,053
Cumulative surplus (deficit)	$1,053

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

A. Savings and investments

B. Pensions and annuities

C. Dividend and interest income

This is because:

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

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

C. The couple needs to increase their taxable income.