The budget director for Yardley Cleaning Services prepared the following list of
ID: 2466675 • Letter: T
Question
The budget director for Yardley 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 a. Complete the schedule of cash payments for S&A; expenses by filling in the missing amountsExplanation / Answer
a.
Schedule of cash payments for S&A Expenses
October
November
December
Equipment lease expense
$5,400.00
$5,400.00
$5,400.00
Prior month's salary expense 100%
$0.00
$5,100.00
$5,600.00
Cleaning supplies
$2,860.00
$2,730.00
$3,010.00
Insurance premium
$8,400.00
$0.00
$0.00
Depreciation on computer
$0.00
$0.00
$0.00
Rent
$2,500.00
$2,500.00
$2,500.00
Miscellaneous expense
$730.00
$730.00
$730.00
Total disbursement for operating expenses
$19,890.00
$16,460.00
$17,240.00
Note:
1. Depreciation on computer is not a cash expense but an amortization of cash already paid for computer.
2. Insurance premium paid in the month of October = $1,400 * 6 months = $8,400. This premium for next 6 months and hence no premium shall be paid in the month of November and December.
b.
At the end of fourth quarter i.e. on December 31, only December salary shall remain unpaid as it shall be paid in the month of January.
Hence Salaries payable = Salary for the month of December = $6,000
c.
Upto December 31 insurance premium for the month of October, November and December shall be recognized as expense by crediting prepaid insurance. Hence at the end of Fourth quarter, prepaid insurance shall reflect the insurance premium for 3 months i.e. January to March.
Prepaid Insurance = $1,400 * 3 = $4,200
Schedule of cash payments for S&A Expenses
October
November
December
Equipment lease expense
$5,400.00
$5,400.00
$5,400.00
Prior month's salary expense 100%
$0.00
$5,100.00
$5,600.00
Cleaning supplies
$2,860.00
$2,730.00
$3,010.00
Insurance premium
$8,400.00
$0.00
$0.00
Depreciation on computer
$0.00
$0.00
$0.00
Rent
$2,500.00
$2,500.00
$2,500.00
Miscellaneous expense
$730.00
$730.00
$730.00
Total disbursement for operating expenses
$19,890.00
$16,460.00
$17,240.00
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