Kevin Farris, managing partner of Farris Business Consulting, is preparing a budget for January 2016, the first month of business operations. Kevin estimates the following monthly selling and administrative expenses: office lease, $5,400; utilities, $1,600; office supplies, $3,000; depreciation, $12,000; referral fees, $5,000; and miscellaneous, $1,000. Referral fees will be paid in the month following the month they are incurred. Other expenses will be paid in the month in which they are incurred.
a. Determine the amount of budgeted cash payments for January selling and administrative expenses.
b. Determine the amount of referral fees payable the firm will report on the January 31st pro forma balance sheet.
c. Determine the amount of office lease expense the company will report on its 2016 pro forma income statement, assuming that the monthly lease expense remains the same throughout the whole year.