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Sequoia Furniture Company’s sales over the past three months,half of which are for cash, were...

Sequoia Furniture Company’s sales over the past three months, half of which are for cash, were as follows: March April May $440,000 $690,000 $560,000 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?

Solutions

Expert Solution

a. If its collection period is 60 days, then

Collection period is 60 days 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 = $280,000 + $220,000
Cash receipts in May = $500,000

Accounts receivable in May = Credit sales in April + Credit sales in May
Accounts receivable in May = $345,000 + $280,000
Accounts receivable in May = $625,000

b. If its collection period is 45 days,

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 = $280,000 + $345,000
Cash receipts in May = $625,000

Accounts receivable in May = Credit sales in May
Accounts receivable in May = $280,000

jeff jeffy answered 2 years ago
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