# Accounting – Cornerstone Exercise 9-30 (Algorithmic)

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Cornerstone Exercise 9-30 (Algorithmic)
Preparing a Schedule of Cash Collections on Accounts Receivable

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Kailua and Company is a legal services firm. All sales of legal services are billed to the client (there are no cash sales). Kailua expects that, on average, 20 percent will be paid in the month of billing, 50 percent will be paid in the month following billing, and 25 percent will be paid in the second month following billing. For the next five months, the following sales billings are expected:

 May \$  84,000 June 100,800 July 77,000 August 87,600 September 90,000

Prepare a schedule showing the cash expected in payments on accounts receivable in August and in September. If an amount is zero, enter “0”.

 Kailua and Company Schedule

 August
 September
 June:

 \$ x %
 \$
 July:

 \$ x %

 \$ x %

 \$
 August:

 \$ x %

 \$ x %

 September:

 \$ x %
 Total
 \$
 \$

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Cornerstone Exercise 9-31 (Algorithmic)
Preparing an Accounts Payable Schedule

Wight Inc. purchases raw materials on account for use in production. The direct materials purchases budget shows the following expected purchases on account:

 April \$373,800 May 411,100 June 415,900

Wight typically pays 20 percent on account in the month of billing and 80 percent the next month.

1. How much cash is required for payments on account in May?
\$     _________________

2. How much cash is expected for payments on account in June?
\$     _________________

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Cornerstone Exercise 9-32 (Algorithmic)
Preparing a Cash Budget

La Famiglia Pizzeria provided the following information for the month of October:

1. Sales are budgeted to be \$156,000. About 85 percent of sales are cash; the remainder are on account.
2. La Famiglia expects that, on average, 70 percent of credit sales will be paid in the month of sale, and 28 percent will be paid in the following month.
3. Food and supplies purchases, all on account, are expected to be \$119,000. La Famiglia pays 25 percent in the month of purchase and 75 percent in the month following purchase.
4. Most of the work is done by the owners, who typically withdraw \$6,000 a month from the business as their salary. (The \$6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost \$7,300 per month. They are paid for their work weekly, so on average 90 percent of their wages are paid in the month incurred and the remaining 10 percent in the next month.
5. Utilities average \$5,950 per month. Rent on the building is \$4,100 per month.
6. Insurance is paid quarterly; the next payment of \$1,000 is due in October.
7. September sales were \$181,500 and purchases of food in September equaled \$130,000.
8. The cash balance on October 1 is \$2,147.
1.  Calculate the cash receipts expected in October.
\$     _________________

2.  Calculate the cash needed in October to pay for food purchases.
\$     _________________

3.  Prepare a cash budget for the month of October. If required, round to the nearest dollar.

 La Famiglia Pizzeria
 Cash budget
 For the month of October
 Beginning balance

 \$
 Cash receipts

 Cash available

 \$
 Less:

 Payments for food purchases

 \$
 Owners’ draw

 Workers’ wages

 Utilities

 Rent

 Insurance

 Total disbursements

 Ending balance

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Exercise 9-42 (Algorithmic)
Schedule of Cash Collections on Accounts Receivable and Cash Budget

Lopez Inc. found that about 25 percent of its sales during the month were for cash.

Lopez has the following accounts receivable payment experience:

Lopez’s anticipated sales for the next few months are as follows:

1a. Calculate credit sales for May.
\$     _________________

1b. Calculate credit sales for June.
\$     _________________

1c. Calculate credit sales for July.
\$     _________________

1d. Calculate credit sales for August.
\$     _________________

2.  Prepare a schedule of cash receipts for July and August.

 Lopez, Inc.Schedule of Cash ReceiptsFor July and August

 July
 August
 Cash sales
 \$
 \$
 Payments on account:

 From May credit sales:

 \$ x %

 From June credit sales:

 \$ x %

 \$ x %

 From July credit sales:

 \$ x %

 \$ x %

 From August credit sales:

 \$ x %

 Cash receipts
 \$
 \$

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Exercise 9-43
Schedule of Cash Collections on Accounts Receivable and Cash Budget

Fahrad Inc. sells all of its product on account. Fahrad has the following accounts receivable payment experience:

To encourage payment in the month of sale, Fahrad gives a 2 percent cash discount. Fahrad’s anticipated sales for the next few months are as follows:

1.  Prepare a schedule of cash receipts for July.

 Fahrad, Inc.Schedule of Cash ReceiptsFor July
 Payments on account:

 From May credit sales:

 \$ x %
 \$
 From June credit sales:

 \$ x %
 From July credit sales:

 \$ x %
 Less: July cash discount

 \$ x %
 Cash receipts
 \$

2.  Prepare a schedule of cash receipts for August.

 Fahrad Inc.Schedule of Cash ReceiptsFor August
 Payments on account:

 From June credit sales:

 \$ x %
 \$
 From July credit sales:

 \$ x %
 \$
 From August credit sales:

 \$ x %
 Less: August cash discount

 \$ x %
 Cash receipts
 \$

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Exercise 9-44
Cash Payments Schedule

Draper Company provided the following information relating to cash payments:

1. Draper purchased direct materials on account in the following amounts:

2. Draper pays 15 percent of accounts payable in the month of purchase and the remaining 85 percent in the following month.
3. In July, direct labor cost was \$34,500. August direct labor cost was \$36,700. The company finds that typically 90 percent of direct labor cost is paid in cash during the month, with the remainder paid in the following month.
4. August overhead amounted to \$83,200, including \$5,900 of depreciation.
5. Draper had taken out a loan of \$15,000 on May 1. Interest, due with payment of principal, accrued at the rate of 9 percent per year. The loan and all interest were repaid on August 31.

Prepare a schedule of cash payments for Draper Company for the month of August.

 Draper CompanySchedule of Cash PaymentsFor August

 August
 Payments on accounts payable:

 From July purchases

 \$ x %
 \$
 From August purchases

 \$ x %
 Direct labor payments:

 From July

 \$ x %
 From August

 \$ x %
 \$
 Loan repayment
 Cash payments
 \$

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Exercise 9-45
Cash Budget

Links to learning objectives referenced by this question can be accessed in the “Additional Resources” drop-down menu above.

The owner of a small mining supply company has requested a cash budget for June. After examining the records of the company, you find the following:

1. Cash balance on June 1 is \$1,230.
2. Actual sales for April and May are as follows:

3. Credit sales are collected over a three-month period: 40 percent in the month of sale, 35 percent in the second month, and 20 percent in the third month. The sales collected in the third month are subject to a 2 percent late fee, which is paid by those customers in addition to what they owe. The remaining sales are uncollectible.
4. Inventory purchases average 65 percent of a month’s total sales. Of those purchases, 20 percent are paid for in the month of purchase. The remaining 80 percent are paid for in the following month.
5. Salaries and wages total \$12,500 per month, including a \$4,500 salary paid to the owner.
6. Rent is \$4,340 per month.
7. Taxes to be paid in June are \$6,780.

The owner also tells you that he expects cash sales of \$19,500 and credit sales of \$52,000 for June. No minimum cash balance is required. The owner of the company doesn’t have access to short-term loans.

1.  Prepare a cash budget for June. Include supporting schedules for cash collections and cash payments. Round calculations and final answers to the nearest dollar.

 Cash BudgetFor June
 Beginning cash balance
 \$

 Collections:

 Cash sales

 Credit sales:

 Current month

 \$ x %

 May credit sales

 \$ x %

 April credit sales

 Total cash available

 \$
 Less disbursements:

 Inventory purchases:

 Current month

 \$ x %
 \$

 Prior month

 \$ x %

 Salaries and wages

 Rent

 Taxes

 Total cash needs

 Cash Deficit

 \$

2. Did the business show a negative cash balance for June?
_________________

Supposing that the owner has no hope of establishing a line of credit for the business, what recommendations would you give the owner for dealing with a negative cash balance?

The input in the box below will not be graded, but may be reviewed and considered by your instructor.
_________________

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Problem 9-46
Cash Budget

Links to learning objectives referenced by this question can be accessed in the “Additional Resources” drop-down menu above.

Morrissey Law Firm has found from past experience that 20 percent of its services are for cash. The remaining 80 percent are on credit. An aging schedule for accounts receivable reveals the following pattern:

1. Ten percent of fees on credit are paid in the month that service is rendered.
2. Seventy percent of fees on credit are paid in the month following legal service.
3. Seventeen percent of fees on credit are paid in the second month following the legal service.
4. Three percent of fees on credit are never collected.

Fees (on credit) that have not been paid until the second month following performance of the legal service are considered overdue and are subject to a 3 percent late charge.

Morrissey has developed the following forecast of fees:

Prepare a schedule of cash receipts for August and September. If no entry is required, leave the answer box blank (or answer “0”). Round answers to the nearest dollar.

 Morrissey Law Firm
 Schedule of Anticipated Cash Receipts
 For August and September

 August

 September
 Cash fees

 \$

 \$

 June

 July

 August

 September

 Total

 \$

 \$