Question

The Westwood Cycle Company expects to start operations on July 1, 2020 and will sell bicycles...

The Westwood Cycle Company expects to start operations on July 1, 2020 and will sell bicycles out of its store that it recently leased in the town center. Westwood Cycle has budgeted sales for the month of July to be $12,000 of which 30 percent will be cash sales and 70 percent will be sales on account. Westwood Cycle expects a 15 percent increase in sales per month for August and September with the ratio of cash sales to sales on account remaining stable for each month. Westwood Cycle normally collects 100 percent of sales on account in the month following the month of sale.

Required:

  1. Prepare the sales budget for the months of July through September in a format similar to below.

  2. What is the amount of sales revenue that Westwood Cycle will report on its pro forma income statement for the three months ended September 30?

  3. Determine the amount of accounts receivable the company will report on its third quarter pro forma balance sheet.



Sales Budget

July

August

September

Cash Sales

Sales on Account

Total Budgeted Sales

Schedule of Cash Receipts

Current Cash Sales

Collections from Sales on Account

Total Budgeted Cash Receipts
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Answer #1

(1) sales budget

July august September
cash sales $3,600($12,000*30%) $4,140($13,800*30%) $4,761($15,870*30%)
sales on account $8,400($12,000*70%) $9,660($13,800*70%) $11,109($15,870*70%)
Total budgeted sales $12,000 $13,800($12,000*115%) $15,870($13,800*115%)

(2) schedule of cash receipts

July Aug Sept
current cash sales $3,600 $4,140 $4,761
Collections from sales on account 0 (as it is a new business there will be no pending receivables from previous month) $8,400 (sales on account of july will be received in August) $9,660 (sale on account of August will be received in september)
Total budgeted cash receipts $3,600 $12,540($4,140+$8,400) $14,421($4,761+$9,660)
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