Question

January budgeted selling and administrative expenses for the retail shoe store that Craig Shea plans to open on January 1, year 1, are as follows: sales commissions, $50,000; rent, $30,000; utilities, $10,000; depreciation, $5,000; and miscellaneous, $2,500. Utilities are paid in the month after they are incurred. Other expenses are expected to be paid in cash in the month in which they are incurred. Required Determine the amount of budgeted cash payments for January selling and administrative expenses. Determine the amount of utilities payable the store will report on the January 31 pro forma balance sheet. Determine the amount of depreciation expense the store will report on the income statement for year 1, assuming that monthly depreciation remains the same for the entire year.

Answer 1

Answer:

1. The budgeted cash payment for January selling and administrative expenses is $82,500.

2. The amount of utilities payable is $10,000.

3. The amount of depreciation expense the store will report on the income statement for year 1 is $60,000

Explanation:

1. Determine the amount of budgeted cash payments for January selling and administrative expenses.

Budgeted cash payment = Sales commissions + Rent + Miscellaneous

                                         = $50,000 + $30,000 + $2,500

Budgeted cash payment = $82,500.

Therefore, the budgeted cash payment for January selling and administrative expenses is $82,500.

2. Determine the amount of utilities payable the store will report on the January 31 pro forma balance sheet.

Since utilities are paid in the month after they are incurred, the amount of utilities payable is $10,000.

3. Determine the amount of depreciation expense the store will report on the income statement for year 1, assuming that monthly depreciation remains the same for the entire year.

Depreciation expenses for year 1 = $5,000 × 12 = $60,000.

Therefore, the amount of depreciation expense the store will report on the income statement for year 1 is $60,000.

Note that depreciation is not a cash expenses but just a recognition of the wear and tear of the asset. That is why it does not fall under any cash category above but to be reported in the income statement.