Exercise 9 - Exercise 9-1 Schedule of Expected Cash...

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Unformatted text preview: Exercise 9-1 Schedule of Expected Cash Collections [LO2] Silver Company makes a product that is very popular as a Mother's Day gift. Thus, Peak sale occur in May of each year, as shown in the company's sales budget for the second quarter given below: April May June Total Budgeted sales (all on account) $ 556,000 $ 855,000 $ 473,000 $ 1,884,000 From past experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $407,000, and March sales totaled $533,000. Requirement 1: Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) April May June Total February sales $ 40,700 $ $ $ 40,700 March sales 373,100 53,300 426,400 April sales 111,200 389,200 55,600 556,000 May sales 171,000 598,500 769,500 June sales 94,600 94,600 Total cash collections $ 525,000 $ 613,500 $ 748,700 $ 1,887,200 Feedback: April May June Total February sales: $407,000 × 10% $ 40,700 $ 40,700 March Sales: $533,000 × 70%, 10% 373,100 $ 53,300 426,400 April sales: $556,000 × 20%, 70%, 10% 111,200 389,200 $ 55,600 556,000 May sales: $855,000 × 20%, 70% 171,000 598,500 769,500 June sales: $473,000 × 20% 94,600 94,600 Total cash collections $ 525,000 $ 613,500 $ 748,700 $ 1,887,200 Observe that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the company's customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest. Requirement 2: Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date. (Omit the "$" sign in your response.) Accounts receivable $ 463,900 Feedback: Accounts receivable at June 30: From May sales: $855,000 × 10% $ 85,500 From June sales: $473,000 × (70% + 10%) 378,400 Total accounts receivable at June 30 $ 463,900 Exercise 9-2 Production Budget [LO3] Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows: Sales in Units April 16,000 May 35,000 June 55,000 July 53,000 The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 5% of the following month's sales. The inventory at the end of March was 800 units....
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This note was uploaded on 10/17/2010 for the course ACCT 1234 taught by Professor Duck during the Spring '10 term at A.T. Still University.

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Exercise 9 - Exercise 9-1 Schedule of Expected Cash...

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