Springfield Company\'s master budget includes estimated costs and expenses of $4

Question

Springfield Company's master budget includes estimated costs and expenses of $400,000 for its third quarter of operations. Of this amount, $377,000 is expected to be financed with current payables. Depreciation expense for the quarter is budgeted at $20,000. Springfield's prepayments balance at the end of the third quarter is expected to be twice that of its prepayments balance at the beginning of the quarter. The company estimates it will prepay expenses totaling $6,800 in the third quarter. What is Springfield's budgeted prepayments balance at the end of the third quarter?

Explanation / Answer

Answer

Springfield's budgeted prepayments balance at the end of the third quarter:

Payment to be expired during the quarter= total cost - financed with current payables-Depreciation expense for the quarter

Payment to be expired during the quarter =$400000-$377000-$20000

=$3000

Now, Ending prepayment = Beginning prepayment+Cash payment- Expired prepayment

Ending prepayment is twice of its Beginning prepayment

Then, 2x = x +$6800-$3000

x =$3800

Hence, Beginning prepayment is $3800

then, Ending prepayment =$3800*2

=$7600

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