Question

Schedule of cash payments for a service company

Horizon Financial Inc. was organized on February 28. Projected selling and administrative expenses for each of the first three months of operations are as follows:

March	$177,900
April	165,400
May	150,500

Depreciation, insurance, and property taxes represent $38,000 of the estimated monthly expenses. The annual insurance premium was paid on February 28, and property taxes for the year will be paid in June. 75% of the remainder of the expenses are expected to be paid in the month in which they are incurred, with the balance to be paid in the following month.

Prepare a schedule of cash payments for selling and administrative expenses for March, April, and May.

Horizon Financial Inc.
Schedule of Cash Payments for Selling and Administrative Expenses
For the Three Months Ending May 31
	March	April	May
March expenses:
Paid in March	$
Paid in April		$
April expenses:
Paid in April
Paid in May			$
May expenses:
Paid in May
Total cash payments	$	$	$

Answer 1

Answer -

Horizon Financial Inc.
Schedule of Cash Payment for Selling and Administration Expenses
For the Tree Months Ending May 31
	March	April	May
March expenses:
Paid in March	$104925
Paid in April		$34975
April expenses:
Paid in April		$95550
Paid in May			$31850
May expenses:
Paid in May			$84375
Total cash payments	$104925	$130525	$116225

Calculation:

Projected selling and administration expenses for the month of March = $177900

But, Depreciation, insurance and property taxes = $38000 of the estimated monthly expenses (Insurance was paid on February 28 and property taxes will be paid in month of June).

So, Remainder for month of March = $177900 - $38000 = $139900

Remainder for month of April = $165400 - $38000 = $127400

Remainder for month of May = $150500 - $38000 = $112500

1. March expenses:

Paid in March:

75% of remainder of the expenses are paid in month which they incurred.

= Remainder * 75%

= $139900 * 75%

= $104925

Paid in April:

Remaining balance paid in the following month i.e. 25% of remainder (100% - 75%).

= Remainder * 25%

= $139900 * 25%

= $34975

2. April expenses:

Paid in April:

75% of remainder of the expenses are paid in month which they incurred.

= Remainder * 75%

= $127400 * 75%

= $95550

Paid in May:

Remaining balance paid in the following month i.e. 25% of remainder (100% - 75%).

= Remainder * 25%

= $127400 * 25%

= $31850

3. May expenses:

Paid in May:

75% of remainder of the expenses are paid in month which they incurred.

= Remainder * 75%

= $112500 * 75%

= $84375