Question

The budget director for Vernon 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 Complete the schedule of cash payments for S&A expenses by filling in the missing amounts. Determine the amount of salaries payable the company will report on its pro forma balance sheet at the end of the fourth quarter. 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

Here we can complete a cash flows of the organization but in the question it is asked to determine that the salaries outstanding and prepaid insurance amount to be represented in proforma balancesheet

Represtentaion of salaries outstanding and prepaid insurance for the end of 4th quarter is as follows :-

1. As said in the question the salaries to be paid in the following month of it incurred it means the salaries is incurred in December will be paid in January by organization.

2. Let take a assumption that salaries paid for one month = X and the amount outstanding for month december is also = X

Here the balance of outstanding salaries in the proforma balance sheet at the end of quarter = X

3. Hence the outstanding salaries in the proforma balance sheet for end of quarter 4 = X (one month salary for employee)

4. Prepaid insurance to be presented in the proforma balance sheet is as follows

5. Let assume that amount paid for insurance for six months = A

6. As said in the question insurance is paid in month of october, so this is the end of quarter 4 that means end of December till now we can recognize 3 months ( i.e october, november, december) insurance expense as expenditure and rest of 3 months as prepaid insurance.

7. Amount to be kept in proforma balancesheet as prepaid insurance = A÷3 for rest of three months ( i.e. january, february, march)

Hence, as said in all the above points the outstanding salaries to be report as X amount and prepaid insurance amount to be represent as A÷3. For the reporting of ending of quarter 4.

Assumptions taken to solve the above problem

1. Here we assumed that calendar is the accounting year and quarter 4 is october to december

2. Salaries payment amount for one month = X

3. Total amount paid for insurance in October = A

Hence, these are the required information to solve the above problem