Question

Sequoia Furniture Company’s sales over the past three months, half of which are for cash, were as follows: March April May $416,000 $666,000 $536,000 a. Assume that Sequoia’s collection period is 60 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May? b. Now assume that Sequoia’s collection period is 45 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?

Sequoia Furniture Company's sales over the past three months, half of which are for cash, were as follows: March $416,000 April $666,000 May $536,000 a. Assume that Sequoia's collection period is 60 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May? Cash receipts Accounts receivable balance | $ $ 476,000 601,000 b. Now assume that Sequoia's collection period is 45 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May? Cash receipts Accounts receivable balance

Answer 1

Cash Sales Credit Sales Total Sales $ $ $ March 208,000 $ 208,000$ 416,000$ April 333,000 $ 333,000 $ 666,000 $ May 268,000 268,000 536,000

Answer a.

Collection period is 60 days which means credit sale during March will be collected in May and April credit sale will be collected in June.

Cash receipts in May = Cash sales in May + Credit sales in March
Cash receipts in May = $268,000 + $208,000
Cash receipts in May = $476,000

Accounts receivable in May = Credit sales in April + Credit sales in May
Accounts receivable in May = $333,000 + $268,000
Accounts receivable in May = $601,000

Answer b.

Collection period is 45 days which means credit sale during March will be collected in April and April credit sale will be collected in May.

Cash receipts in May = Cash sales in May + Credit sales in April
Cash receipts in May = $268,000 + $333,000
Cash receipts in May = $601,000

Accounts receivable in May = Credit sales in May
Accounts receivable in May = $268,000

Answer 2

b.

With a 45-day collection period, cash collected on May 1 is from credit sales made in mid-March, and collections on May 31 are from credit sales made in mid-April. 

Therefore, cash receipts from credit sales are from the period mid-March through mid-April, or (416,000/2 + 666,000/2)/2 = $270,500. Adding sales for cash of $268,000, the total is $538,500. 

The accounts receivable balance would be May’s credit sales and half of April’s credit sales, or 268,000 + 333,000/2 = $434,500.

	B Answers:
	Cash receipts$ 538,500 Accounts receivable balance $434,500