Ch

Only available on StudyMode
  • Download(s) : 60
  • Published : March 30, 2015
Open Document
Text Preview


16. J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year as: September (actual)
$70,000
Fourth Quarter 
October
$60,000
November
55,000
December
80,000
Schedule of cash receipts (LO2)
Experience has shown that 30 percent of sales are collected in the month of sale, 60 percent in the following month, and 10 percent are never collected. Prepare a schedule of cash receipts for J. Lo’s Clothiers covering the fourth quarter (October through December). Solution:

J. Lo’s Clothiers

September
October
November
December
Credit sales
$70,000
$60,000
$55,000
$80,000
30% Collected in month of sales

18,000

16,500

24,000
60% Collected in month after sales

42,000

36,000

33,000
Total cash receipts

$60,000

$52,500

$57,000

19.
The Elliot Corporation has forecast the following sales for the first seven months of the year: January
$12,000
 
May
$12,000
February
16,000
 
June
20,000
March
18,000
 
July
22,000
April
24,000
 
 
 
Schedule of cash payments (LO2)
Monthly material purchases are set equal to 20 percent of forecasted sales for the next month. Of the total material costs, 40 percent are paid in the month of purchase and 60 percent in the following month. Labor costs will run $6,000 per month, and fixed overhead is $3,000 per month. Interest payments on the debt will be $4,500 for both March and June. Finally, Elliot’s salesforce will receive a 3 percent commission on total sales for the first six months of the year, to be paid on June 30. Prepare a monthly summary of cash payments for the six-month period from January through June. (Note: Compute prior December purchases to help get total material payments for January.) Solution:

Elliot Corporation
Cash Payments Schedule
 
Dec.
Jan.
Feb.
March
April
May
June
July
Sales
 
$12,000
$16,000
$18,000
$24,000
$12,000
$20,000
$22,000
Purchases
(20% of next
month’s sales)
2,400
3,200
3,600
4,800
2,400
4,000
4,400
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payment
(40% of current
purchases)
 
1,280
1,440
1,920
960
1,600
1,760
 
 

 
 
 
 
 
 
 
 
 
 
Material payment
(60% of previous
month’s purchases)
 
1,440
1,920
2,160
2,880
1,440
2,400
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total payment
for materials
 
2,720
3,360
4,080
3,840
3,040
4,160
 
 
 

 
Labor costs
 
6,000
6,000
6,000
6,000
6,000
6,000
 
Fixed overhead
 
3,000
3,000
3,000
3,000
3,000
3,000
 
Interest payments
 
 
 
4,500
 
 
4,500
 
 
 
 
 

 
Sales commission
(3% of $102,000)
 
 
 
 
 
 
3,060
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total payments
 
$11,720
$12,360
$17,580
$12,840
$12,040
$20,720
 

25

Carter Paint Company has plants in nine midwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary directly with sales. Percent-of-sales method (LO3)

BALANCE SHEET 
(in $ millions) 
Assets 
 
Liabilities and Stockholders’ Equity 
Cash
$ 5
 
Accounts payable
$15
Accounts receivable
15
 
Accrued wages
6
Inventory
30
 
Accrued taxes
4
 
Current assets
50
 
 
Current liabilities
25
Fixed assets
40
 
Notes payable
30
 
 
 
 
Common stock
15
 
 
 
 
Retained earnings
20
Total assets
$90 
 
Total liabilities and stockholders’ equity
$90 

Carter Paint has an aftertax profit margin of 5 percent and a dividend payout ratio of 30 percent. If sales grow by 10 percent next year, determine how many dollars of new funds are needed to finance the expansion. (Assume Carter Paint is already using assets at full capacity and that plant must...
tracking img