Ch 23 H Help 3 Springfield Companys master budget includes e

Ch. 23 H .Help 3 Springfield Company\'s master budget includes estimated costs and expenses of $325,.000 for its third quarter of operations. Of this amount, $311,000 is expected to be financed with current payables. Depreciation expense for the quarter is budgeted at $10,000 prepayments balance at the end of the third quarter is expected to be twice that of its prepayments balance at the 714 beginning of the quarter. The company estimates it will prepay expenses totaling $7,200 in the third quarter budgeted prepayments balance at the end of the third quarter? Print O Type here to se

Solution

What is Springfield’s budgeted prepayments balance at the end of the third month?

Answer:

The company’s prepaid expense balance at the beginning of the year = Estimated Costs – Financed from Current payables – Depreciation = 325,000 – 311,000 – 10,000 = 4,000.

We can put a formula for the ending prepay expense balance like this

2X Ending Prepayment = Beginning period Prepay payments + Payments during third quarter – prepay expense balance in the beginning period

2X = X + 7,200 – 4,000

2X – X = 3,200

X = 3,200

Therefore 2 times of X i.e 6,400 is prepay balance at the end of third quarter.