Use the information below for Finch Company to answer the
question that follow.
Finch Company began its operations on March 31 of the current year.
Finch has the following projected costs:
April | May | June | |
Manufacturing costs (1) | $158,000 | $200,000 | $203,000 |
Insurance expense (2) | 1,150 | 1,150 | 1,150 |
Depreciation expense | 1,890 | 1,890 | 1,890 |
Property tax expense (3) | 450 | 450 | 450 |
(1) Of the manufacturing costs, three-fourths are paid for in the
month they are incurred and one-fourth is paid for in the following
month.
(2) Insurance expense is $1,150 a month; however, the insurance is
paid four times yearly, in the first month of the quarter (i.e.,
January, April, July, and October).
(3) Property tax is paid once a year in November.
The cash payments expected for Finch Company in the month of June
are
a.$252,250
b.$202,250
c.$152,250
d.$50,000
Answer: b. $202,250
.
.
Finch Company | |||
Schedule of Cash Payments | |||
For the Three Months Ending June 30 | |||
April | May | June | |
Manufacturing costs: | |||
Of April: | |||
Paid in April [$158,000 x 3/4] | $118,500 | ||
Paid in May [$158,000 x 1/4] | $39,500 | ||
Of May: | |||
Paid in May [$200,000 x 3/4] | $150,000 | ||
Paid in June [$200,000 x 1/4] | $50,000 | ||
Of June: | |||
Paid in June [$203,000 x 3/4] | $152,250 | ||
Insurance expenses: | |||
Paid in April [$1,150 x 12 months x (1/4)] | $3,450 | ||
Total cash payments | $121,950 | $189,500 | $202,250 |
Note: Depreciation is a non-cash expense. Insurance premium and Property taxes are not paid in the month of June. So, insurance expense & property taxes should not be considered to calculate June cash payments. |
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