Problem 1 Southeast Medical is a wholesale distributor of custom-designed wheelc
ID: 2552746 • Letter: P
Question
Problem 1
Southeast Medical is a wholesale distributor of custom-designed wheelchairs for high school and college students. The peak sales occur in August of each year as shown in the company’s sales budget for the third quarter, given below:
July
August
September
Total
Budgeted sales
$600,000
$900,000
$500,000
$2,000,000
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. May sales totaled $430,000, and June sales totaled $540,000.
Required:
a. Prepare a schedule of expected cash collection from sales, by month and in total, for the third quarter (complete the table below).
July
August
September
Total
From May sales:
From June sales:
From July sales:
From August sales:
From September sales:
Total cash collections
b. Assume the company will prepare a budgeted balance sheet as of September 30. Compute the accounts receivable as of that date.
July
August
September
Total
Budgeted sales
$600,000
$900,000
$500,000
$2,000,000
Explanation / Answer
a.
July
August
September
Total
From May sales:
43,000 (430,000*10%)
43,000
From June sales:
378,000 (540,000*70%)
54,000 (540,000*10%)
432,000
From July sales:
120,000 (600,000*20%)
420,000 (600,000*70%)
60,000 (600,000*10%)
600,000
From August sales:
180,000 (900,000*20%)
630,000 (900,000*70%)
810,000
From September sales:
100,000 (500,000*20%)
100,000
Total cash collections
541,000
654,000
790,000
1,985,000
b.
Accounts receivable as of September 30 = 10% of August sales + 80% of September sales
= (900,000*10%) + (500,000*80%)
= 490,000
July
August
September
Total
From May sales:
43,000 (430,000*10%)
43,000
From June sales:
378,000 (540,000*70%)
54,000 (540,000*10%)
432,000
From July sales:
120,000 (600,000*20%)
420,000 (600,000*70%)
60,000 (600,000*10%)
600,000
From August sales:
180,000 (900,000*20%)
630,000 (900,000*70%)
810,000
From September sales:
100,000 (500,000*20%)
100,000
Total cash collections
541,000
654,000
790,000
1,985,000
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