Prepare a schedule of expected cash collections from sales, by month and in total, for the sec ond quarter. 2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date. Help me do excercise 9-1 particular . a Mother’s Day gift. Thus, peak sales oc- EXERCISE 9-1 Schedule of Expected Cash Collections [LO2] cur in May of each year, as shown in the company’s sales budget for the second quarter given below: April May $300,000 $500,000 April May June July.. June $200,000 Budgeted sales (all on account)…….. 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 $230,000, and March sales totaled $260,000. Total $1,000,000 Required: 1. Prepare a schedule of expected cash collections from sales, by month and in total, for the sec- ond quarter. 2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date. Sales in Units CC EXERCISE 9-2 Production Budget [L03] Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the ne four months as follows: 50,000 75,000 90,000 80,000 The company is now in the process of preparing a production budget for the second quarter. experience has shown that end-of-month inventory levels must equal 10% of the following mo
The Correct Answer and Explanation is :
To assist you with Exercise 9-1, we’ll prepare a schedule of expected cash collections from sales for the second quarter and compute the accounts receivable as of June 30.
1. Schedule of Expected Cash Collections:
The company collects its sales as follows:
- 20% in the month of sale
- 70% in the month following the sale
- 10% in the second month following the sale
Given the sales data:
- February: $230,000
- March: $260,000
- April: $300,000
- May: $500,000
- June: $200,000
We can calculate the cash collections for each month of the second quarter (April, May, and June) as follows:
April Collections:
- From February sales (10%): $230,000 * 10% = $23,000
- From March sales (70%): $260,000 * 70% = $182,000
- From April sales (20%): $300,000 * 20% = $60,000
Total collections in April: $23,000 + $182,000 + $60,000 = $265,000
May Collections:
- From March sales (10%): $260,000 * 10% = $26,000
- From April sales (70%): $300,000 * 70% = $210,000
- From May sales (20%): $500,000 * 20% = $100,000
Total collections in May: $26,000 + $210,000 + $100,000 = $336,000
June Collections:
- From April sales (10%): $300,000 * 10% = $30,000
- From May sales (70%): $500,000 * 70% = $350,000
- From June sales (20%): $200,000 * 20% = $40,000
Total collections in June: $30,000 + $350,000 + $40,000 = $420,000
Total Collections for the Second Quarter:
$265,000 (April) + $336,000 (May) + $420,000 (June) = $1,021,000
2. Accounts Receivable as of June 30:
Accounts receivable on June 30 consists of:
- 70% of June sales (to be collected in July): $200,000 * 70% = $140,000
- 10% of May sales (to be collected in July): $500,000 * 10% = $50,000
Total accounts receivable as of June 30: $140,000 + $50,000 = $190,000
Explanation:
This schedule helps the company anticipate cash inflows, which is crucial for managing operations, planning expenditures, and ensuring liquidity. By analyzing past collection patterns, the company can forecast future cash collections and make informed financial decisions. Understanding accounts receivable at the end of a period provides insight into expected future cash inflows and aids in assessing the company’s financial health.