Question

This question has two parts. Thank you in advance.

1A

Compton Company expects the following total sales:

Month		Sales
March	$	26,000
April	$	16,000
May	$	28,000
June	$	21,000

  
The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

A. $11,760

B. $13,300

C. $18,450

D.$21,000

1B

Compton Company budgeted the following transactions for April Year 2:

Sales (75% collected in month of sale)	$	330,000
Cash Operating Expenses		118,000
Cash Purchases of Investment		88,000
Cash Payment of Debt		28,000
Depreciation on Operating Assets		38,000

The beginning cash balance was $76,000. The company desires to have a $129,000 ending cash balance. The surplus (or shortage) of cash before considering any borrowings in April would be:

A. $79,000 surplus

B. $79,000 shortage

C. $39,500 shortage

D. There is no cash surplus or shortage.

Answer 1

1a) Account receivable at the end of May :

May Credit Sales = 28000*60% = 16800

Account receivable at the end of May = 16800*70% = 11760

So answer is a) $11760

1b) Calculate surplus (or shortage)

Beginning Cash	76000
Cash Collection (330000*75%)	247500
Cash Operating Expenses	-118000
Cash Purchases of Investment	-88000
Cash Payment of Debt	-28000
Preliminary balance	89500
Desired Cash	129000
Shortage	-39500

So answer is c) $39500 Shortage