Concept explainers
Calculating Cash Collections The Litzenberger Company has projected the following quarterly sales amounts for the coming year:
- a. Accounts receivable at the beginning of the year are $335. The company has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following:
- b. Rework (a) assuming a collection period of 60 days.
- c. Rework (a) assuming a collection period of 30 days.
a.
To compute: The cash collection in each of 4 quarters.
Cash Collection:
The receipts at the side of the cash account show the cash collection by the company. The company receives cash when there are cash sales and the collection from accounts receivable is also the cash collection of a company.
Explanation of Solution
Given,
Sales for Q1 are $740.
Sales for Q2 are $840.
Sales for Q3 are $910.
Sales for Q4 are $970.
Accounting receivables at the beginning of the year are $335.
Collection period is 45-days.
Table that shows the amount of cash collection in each quarter,
Particulars |
Q1 ($) |
Q2 ($) |
Q3 ($) |
Q4 ($) |
Beginning Receivable | 335 | 370 | 420 | 455 |
Sales | 740 | 840 | 910 | 970 |
Cash Collections | (705) | (790) | (875) | (940) |
Ending Receivables | 370 | 420 | 455 | 485 |
Table (1)
Working notes:
Calculate the amount of ending receivable in Q1,
Calculate the cash collection in Q1,
Calculate the amount of ending receivable in Q2,
Calculate the cash collection in Q2,
Calculate the amount of ending receivable in Q3,
Calculate the cash collection in Q3,
Calculate the amount of ending receivable in Q4,
Calculate the cash collection in Q4,
Thus, the cash collection in Q1 is $705, Q2 is $790, Q3 is $875, and Q4 is $940.
b.
To compute: The cash collection in each of 4 quarters. The collection period is 60 days.
Explanation of Solution
Given,
Collection period is 60-days.
Table that shows the amount of cash collection in each quarter,
Particulars |
Q1 ($) |
Q2 ($) |
Q3 ($) |
Q4 ($) |
Beginning Receivable | 335 | 493 | 560 | 607 |
Sales | 740 | 840 | 910 | 970 |
Cash Collections | (582) | (773) | (863) | (930) |
Ending Receivables | 493 | 560 | 607 | 647 |
Table (2)
Working Notes:
Calculate the amount of ending receivable in Q1,
Calculate the cash collection in Q1,
Calculate the amount of ending receivable in Q2,
Calculate the cash collection in Q2,
Calculate the amount of ending receivable in Q3,
Calculate the cash collection in Q3,
Calculate the amount of ending receivable in Q4,
Calculate the cash collection in Q4,
Thus, the cash collection in Q1 is $582, Q2 is $773, Q3 is $863, and Q4 is $930.
c.
To compute: The cash collection in each of 4 quarters. The collection period is 30days.
Explanation of Solution
Given,
Collection period is 30-days.
Table that shows the amount of cash collection in each quarter,
Particulars |
Q1 ($) |
Q2 ($) |
Q3 ($) |
Q4 ($) |
Beginning Receivable | 335 | 247 | 280 | 303 |
Sales | 740 | 840 | 910 | 970 |
Cash Collections | (828) | (807) | (887) | (950) |
Ending Receivables | 247 | 280 | 303 | 323 |
Table (3)
Working notes:
Calculate the amount of ending receivable in Q1,
Calculate the cash collection in Q1,
Calculate the amount of ending receivable in Q2,
Calculate the cash collection in Q2,
Calculate the amount of ending receivable in Q3,
Calculate the cash collection in Q3,
Calculate the amount of ending receivable in Q4,
Calculate the cash collection in Q4,
Thus, the cash collection in Q1 is $828, Q2 is $807, Q3 is $887, and Q4 is $950.
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Chapter 26 Solutions
EBK CORPORATE FINANCE
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