Question

The budget director for Vernon 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	$6,800	$6,800	$6,800
Salary expense	5,900	6,400	6,800
Cleaning supplies	2,870	2,800	3,050
Insurance expense	1,800	1,800	1,800
Depreciation on computer	2,200	2,200	2,200
Rent	2,400	2,400	2,400
Miscellaneous expenses	750	750	750
Total operating expenses	$22,720	$23,150	$23,800
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	$23,620	$18,650	$19,400

Answer 1

	October	November	December
Budgeted S&A Expenses
Equipment lease expense	6800	6800	6800
Salary expense	5900	6400	6800
Cleaning supplies	2870	2800	3050
Insurance expense	1800	1800	1800
Depreciation on computer	2200	2200	2200
Rent	2400	2400	2400
Miscellaneous expenses	750	750	750
Total operating expenses	22720	23150	23800
Schedule of Cash Payments for S&A Expenses
Equipment lease expense	6800	6800	6800
Prior month’s salary expense, 100%	0	5900	6400
Cleaning supplies	2870	2800	3050
Insurance premium	10800	0	0
Depreciation on computer	0	0	0
Rent	2400	2400	2400
Miscellaneous expenses	750	750	750
Total disbursements for operating expenses	23620	18650	19400
b. Salaries payable	6800
c. Prepaid insurance	5400	=1800*3