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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

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...