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

Balance ar the beginning of the quarter = $6,800

Estimated cash expenditures during the quarter including depreciation = $420,000

Total prepayments = $426,800

Less: expiration of prepayments ($6,800 * 2) = $13,600

Therefore, prepayments at the end of the quarter = $413,200

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