Scranton Company Expects to Begin Operating on July 1, Year

question 24

Multiple Choice

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: $$\begin{array} { | l | r | r | r | } \hline &\text { July } & \text { August } & \text { September } \\\hline \text { Salary expense } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 30,000 & 32,000 & 24,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,000 & 1,000 & 1,000 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellane ous } & 1,800 & 1,800 & 1,800 \\\hline \text { Total operating expenses } & \$ 78,800 & \$ \quad 80,800 & \$ 72,800 \\\hline\end{array}$$ 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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