Question
The accounting records of Backspace, Inc., revealed an accounts receivable balance of $195,000 on January 1,...
The accounting records of Backspace, Inc., revealed an accounts
receivable balance of $195,000 on January 1, 20x6. Forty percent of
the company's sales are for cash, and the remaining 60% are on
account. Of the credit sales, 30% are collected in the month of
sale and 70% are collected in the following month. Total sales in
January and February are expected to amount to $500,000 and
$530,000, respectively.
Assume that in the latter half of 20x6, Backspace hired a new sales
manager who aggressively tried to maximize the company's market
share. She implemented a compensation system for the sales force
that was 100% commission based, with the commission calculated on
the basis of gross sales dollars. Sales volume increased
dramatically in a very short period of time, and the sales and
collection patterns changed, as follows:
| cash sales 20% | ||||
| Credit sales 80% | ||||
| collected in the month of sale | 15% | |||
| collected in the month following sale | 75% | |||
| uncollectible | 10% |
Required:
A. Compute the company's cash inflows for January and February,
20x6.
B. Determine the outstanding receivables balance at the end of
February.
C. Compare the sales and collection patterns before and after the
arrival of the new sales manager. Have things improved or
deteriorated? Explain.
D. On the basis of the information presented, determine what likely
caused the improvement or deterioration in collection patterns.
Homework Answers
Answer #1
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