Barnes Company Expects to Begin Operating on January 1 Sales Commissions Are Paid in Cash in the Month Following

question 56

Multiple Choice

Barnes Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: $$\begin{array} { | l | r r | r | } \hline& { \text { January } } & { \text { February } } &{ \text { March } } \\\hline \text { Salary expense } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 30,000 & 32,000 & 24,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,000 & 1,000 & 1,000 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellaneous } & 1,800 & 1,800 & 1,800 \\\hline \text { Total operating expenses } & \$ 778,800 & \$ 80,800 & \$ 72,800 \\\hline\end{array}$$ 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 accumulated depreciation appearing on the company's March 31 pro forma balance sheet is:

• A) $1,000.
• B) $2,000.
• C) $3,000.
• D) $12,000.

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Definitions:

Long-Term Investments

Assets that a company intends to hold for more than one year, such as stocks, bonds, real estate, or machinery.

Unrealized Gain-Equity

The increase in the value of investments that a company holds in other companies' stocks, which have not been sold and thus the gain has not been realized.

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, which include terms related to the amount, interest rate, and maturity date.

Maturity Value

The amount payable to the holder of a financial instrument at its maturity date, often the principal plus any final interest payment.