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

Question

Springfield Company's master budget includes estimated costs and expenses of $425,000 for its third quarter of operations. Of this amount, $412.000 is expected to be financed with current payables. Depreciation expense for the quarter is budgeted at $10.000. beginning of the quarter. The company estimates it will prepay expenses totaling $9,400 in the third quarter What is Springfield's budgeted prepayments balance at the end of the third quarter? prepayments balance at the end of the third quarter is expected to be twice that of its prepayments balance at the

Explanation / Answer

Prepayments adjusted in the Third Quarter: Budgeted cost 425,000 Less: Expected to be financed from current payable 412,000 Less: Depreciation 10,000 Adjustment to be made from Prepayments 3,000 Now, Let Beginning Prepayment balance is X Ending Prepayment balance be "2X' Therefore, Beginning Balance of Prepayment X Add: Payment made 9400 Less: Prepayment adjusted -3000 Ending Prepayment balance; 2X Equation be: X + 9400 -3000 = 2X Therefore, value of X = 6400 Therefore, Prepayment ending balance in third quarter: (6400*2): $ 12800

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