Question

The budget director for Yardley Cleaning Services prepared the following list of expected selling and administrative expenses. All expenses requiring cash payments are paid for in the month incurred except salary expense and insurance. Salary is paid in the month following the month in which it is incurred. The insurance premium for six months is paid on October 1. October is the first month of operations; accordingly, there are no beginning account balances.

Required

a.	Complete the schedule of cash payments for S&A expenses by filling in the missing amounts.

October November December Budgeted S&A Expenses Equipment lease expense $6,200 $6,200 $6,200 Salary expense 5,300 5,800 6,200 Cleaning supplies 2,890 2,770 3,040 Insurance expense 1,600 1,600 1,600 Depreciation on computer 2,300 2,300 2,300 Rent 1,600 1,600 1,600 Miscellaneous expenses 750 750 750 Total operating expenses $20,640 $21,020 $21,690 Schedule of Cash Payments for S&A Expenses Equipment lease expense Prior month’s salary expense, 100% Cleaning supplies Insurance premium Depreciation on computer Rent Miscellaneous expenses Total disbursements for operating expenses $21,040 $16,620 $17,390

Determine the amount of salaries payable the company will report on its pro forma balance sheet at the end of the fourth quarter.

c.	Determine the amount of prepaid insurance the company will report on its pro forma balance sheet at the end of the fourth quarter.

Answer 1

October November December 4 Budgeted S&A Expenses 5 Equipment lease expense 6 Salary expense 7 Cleaning supplies 8 Insurance premium 9 Rent 10 Miscellaneous expenses S6200 S6,200 S6,200 5.800 3.040 5,300 2,890 2,770 1600 1600 1600 750 750 750 S21,040 S16,620 S17,390 12 13

(1b) Since salary expenses is paid in the month following the month it is incurred, the amount payable at the end of the Decemberwill be the amount of salary expenses incurred in December, 6200. Insurance premium is prepaid for 6 months on October1; the amount of prepaid insurance at the end of Decemberwillbe $ 4,800.