Question

The budget director for Fanning 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

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.

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 $6,900 $6,900 $6,900 Salary expense 6,200 6,700 7,100 Cleaning supplies 2,840 2,770 3,090 Insurance expense 1,800 1,800 1,800 Depreciation on computer 2,500 2,500 2,500 Rent 2,000 2,000 2,000 Miscellaneous expenses 630 630 630 Total operating expenses $22,870 $23,300 $24,020 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 $23,170 $18,500 $19,320

Answer 1

Solution 1:

Particulars	October	November	December
Budgeted S&A Expenses
Equipment lease expense	$6,900.00	$6,900.00	$6,900.00
Salary expense	$6,200.00	$6,700.00	$7,100.00
Cleaning supplies	$2,840.00	$2,770.00	$3,090.00
Insurance expense	$1,800.00	$1,800.00	$1,800.00
Depreciation on computer	$2,500.00	$2,500.00	$2,500.00
Rent	$2,000.00	$2,000.00	$2,000.00
Miscellaneous expenses	$630.00	$630.00	$630.00
Total operating expenses	$22,870.00	$23,300.00	$24,020.00
Schedule of Cash Payments for S&A Expenses:
Equipment lease expense	$6,900.00	$6,900.00	$6,900.00
Prior month’s salary expense, 100%	$0.00	$6,200.00	$6,700.00
Cleaning supplies	$2,840.00	$2,770.00	$3,090.00
Insurance premium	$10,800.00	$0.00	$0.00
Depreciation on computer	$0.00	$0.00	$0.00
Rent	$2,000.00	$2,000.00	$2,000.00
Miscellaneous expenses	$630.00	$630.00	$630.00
Total disbursements for operating expenses	$23,170.00	$18,500.00	$19,320.00

Solution 2:

Amount of salaries payable the company will report on its pro forma balance sheet at the end of the fourth quarter = Salary expense for December = $7,100

Solution 3:

Amount of prepaid insurance the company will report on its pro forma balance sheet at the end of the fourth quarter = $1,800*3 = $5,400