Question

The budget director for Martin Washing 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.

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

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

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

	October	November	December
Budgeted S&A Expenses
Equipment lease expense	$6,300	$6,300	$6,300
Salary expense	5,900	6,400	6,800
Cleaning supplies	2,870	2,790	3,040
Insurance expense	1,500	1,500	1,500
Depreciation on computer	1,700	1,700	1,700
Rent	2,300	2,300	2,300
Miscellaneous expenses	760	760	760
Total operating expenses	$21,330	$21,750	$22,400
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	$21,230	$18,050	$18,800

Answer 1

a)

	Schedule of Cash Payments for S&A Expenses
	Particulars			October	November	December
	Equipment lease expense			$   6,300.00	$   6,300.00	$   6,300.00
(W.N.1)	Prior month’s salary expense, 100%			$               -	$   5,900.00	$   6,400.00
	Cleaning supplies			$   2,870.00	$   2,790.00	$   3,040.00
(W.N.2)	Insurance Expense			$   9,000.00	$               -	$               -
(W.N.3)	Depreciation on computer			$               -	$               -	$               -
	Rent			$   2,300.00	$   2,300.00	$   2,300.00
	Miscellaneous expenses			$      760.00	$      760.00	$      760.00
	Total disbursements for operating expenses			$ 21,230.00	$ 18,050.00	$ 18,800.00
	W.N.1	Salary Expense
		As per question's instruction, salary of the current month
		has been paid in the following month
	W.N.2	Insurance Expense
		Insurance Premium Expense has been paid for 6
		months at once on October, which is $ 1500 x 6
	W.N.3	Depreciation Expense
		Since Depreciation is a non-cash expense, such will
		not be considered while preparing the budget

b)	Salaries Payable at the end of 4th quarter				$ 6,800.00	(incurred on December, payable on January)
c)	Amount of prepaid expense				$ 4,500.00	($ 1500 x 3)