Scranton Company Expects to Begin Operating on July 1, Year

question 28

Multiple Choice

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: $\begin{array}{lrrr}&\text { January}&\text { February}&\text { March }\\\text { Salary expenses } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\text { Sales commissions, } 5\% \text { of sales } & 30,000 & 32,000 & 24,000 \\\text { Utilities } & 2,800 & 2,800 & 2,800 \\\text { Depreciation on store equipment } &1,000 & 1,000 & 1,000\\\text { Rent } & 7,200& 7,200& 7,200 \\\text { Miscellaneous } & \underline{ 1,800}& \underline{1,800}& \underline{1,800 }\\\text { operating expenses } & \underline{ \$ 78,800}& \underline{\$80,800}& \underline{\$72,800}\end{array}$
Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is:

• A) $32,000.
• B) $30,000.
• C) $36,000.
• D) $24,000.

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Definitions:

Savings Account

A bank account that earns interest over time, allowing individuals to save money for future use.

Deposits

Funds placed into an account in a bank or financial institution for safekeeping or to earn interest.

Compounded Monthly

Describes the process of calculating interest on both the initial principal and the accumulated interest from previous periods on a monthly basis.

Mortgage

A loan used to purchase real estate, secured by the property itself, which the borrower is obligated to pay back with a predetermined set of payments.