Question

Sequoia Furniture Company’s sales over the past three months, half of which are for cash, were as follows: March April May $402,000 $652,000 $522,000 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?  

Answer 1

As per question, Sales of march, April and may is $402,000, $652,000, $522,000 out of which half sales is in cash.

So, following will be cash and credit sales month-wise :

Month	March	April	May
Total Sales (Given)	$ 402,000	$ 652,000	$ 522,000
Less : Cash Sales (half of total sales)	$ 201,000	$ 326,000	$ 261,000
Credit Sales	$ 201,000	$ 326,000	$ 261,000

a)

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

So, Cash receipts in May = Cash sales in May + Credit sales in March
= $261,000 + $201,000
                                      = $462,000

So, Account receivables Closing Balance In May = Credit sales in April + Credit sales in May

                                                                        = $ 326,000 + $ 261,000

                                                                        = $ 587,000

b)

Collection period is 45 days which means (1) Half of credit sale of March will be collected in April & (2) half of credit sale of march as well as half of credit sales of april will be collected in May.

So, Cash receipts in May = Cash sales in May + half of Credit sales in March + half of Credit sales in April
= $261,000 + (1/2 * $201,000) + (1/2 * $ 326,000)
                                      = $261,000 + $100,500 +$163,000

                                      = $ 524,500

So, Account receivables Closing Balance In May = half of Credit sales in April + Credit sales in May

                                                                        = (1/2 * $326,000) + $ 261,000

                                                                        = $ 163,000 + $ 261,000

                                                                        = $ 424,000