Question

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	$190,000	$218,000
Insurance expense (2)	1,040	1,040	1,040
Depreciation expense	1,870	1,870	1,870
Property tax expense (3)	570	570	570

(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 $1,040 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.$258,500

b.$211,000

c.$47,500

d.$163,500

Answer 1

Answer : B = $ 211,000.

>> Cash paid in June = [ $ 218,000 * ( 3 / 4 ) + $ 190,000 / 4 ] = $ 211,000.

>> Insurance cost has paid in April and July. So it should not considered.

>> Depreciation is not cash item. So it should not considered.

>> Property tax is paid in November, So it should not considered.