Question

• eBook

  Calculator

  Print Item

  Schedule of Cash Payments

  EastGate Physical Therapy Inc. is planning its cash payments for operations for the first quarter (January–March). The Accrued Expenses Payable balance on January 1 is $26,700. The budgeted expenses for the next three months are as follows:

  	January		February		March
  Salaries	$61,400		$74,800		$82,800
  Utilities	5,100		5,600		6,700
  Other operating expenses	46,700		50,900		56,000
  Total	$113,200		$131,300		$145,500

  Other operating expenses include $3,400 of monthly depreciation expense and $800 of monthly insurance expense that was prepaid for the year on May 1 of the previous year. Of the remaining expenses, 65% are paid in the month in which they are incurred, with the remainder paid in the following month. The Accrued Expenses Payable balance on January 1 relates to the expenses incurred in December.

  Prepare a schedule of cash payments for operations for January, February, and March.

  EastGate Physical Therapy Inc.
  Schedule of Cash Payments for Operations
  For the Three Months Ending March 30
  	January	February	March
  Payments of prior month's expense	$	$	$
  Payments of current month's expense
  Total payments	$	$	$

Answer 1

Solution

EastGate Physcial Therapy Inc

Schedule of cash payments:

EastGate Physical Therapy Inc
Schedule of Cash Payments for Operations
for the three months ending March 31
	January	February	March
Payment for prior month's expenses	$26,700	$38,150	$44,485
Payment for current month's expenses	$70,850	$82,615	$91,845
Total cash payment	$97,550	$120,765	$136,330

Computations:

1. Payment for prior month’s expenses:

30% of [Total prior month expenses – (depreciation + insurance expenses)]

January - accrued expenses of December = $26,700

February – 35% x [113,200 – (3,400 + 800)] = 35% x 109,000 = $38,150

March – 35% x [131,300 – (3,400 + 800)] = 35% x 127,100 = $44,485

2. Payment for current month’s expenses:

= 65% of [current month expenses – (depreciation + insurance expenses)]

January = 65% x [113,200 – (3,400 + 800)] = 65% x 109,000 = $70,850

February = 65% x [131,300 – (3,400 + 800)] = 65% x 127,100 = $82,615

March = 65% x [145,500 – (3,400 + 800)] = 65% x 141,300 = $91,845

3. Depreciation is a non-cash expense. Insurance is a prepaid expense and hence these two expenses are not included for computation of monthly cash payments.