Question

Monitoring of Receivables. The Russ Fogler company, a small manufacturer of cordless telephones, began operations on January 1. Its credit sales for the first 6 months of operations were as follows:

Month              Credit Sales

January             $ 50,000

February           100,000

March               120,000

April                 105,000

May                 140,000

June                 160,000

Throughout this entire period, the firm’s credit customers maintained a constant payments pattern; 20% paid in the month of sale, 30% paid in the first month following the sale, and 50% paid in the second month following the sale.

What was Fogler’s receivables balance at the end of March and at the end of June? (You must show calculations to receive full credit.)

                 

Assume 90 days per calendar quarter. What were the ADS and DSO for the first and second quarter? You must show calculations to receive full credit.

                     

     

Construct an aging schedule as of June 30. Use account ages of 0-30, 31-60, and 61-90 days. You must show calculations to receive full credit.

                 

Construct the uncollected balances schedule for the second quarter as of June 30. You must show calculations to receive full credit.

Answer 1

a) Receivable Balance at the end of March
		Collection
Month	Amount	Jan	Feb	March	Total Collection	Balance at the end of March
Jan	$        50,000	$        10,000	$      15,000	$      25,000	$        50,000	$               -
Feb	$      100,000		$      20,000	$      30,000	$        50,000	$        50,000
March	$      120,000			$      24,000	$        24,000	$        96,000
Total	$      270,000	$        10,000	$      35,000	$      79,000	$      124,000	$      146,000
First Month collection @ 20%, Second Month collection @ 30%, Third Month Collection @ 50%
Receivable Balance at the end of March $146,000
Receivable Balance at the end of June
		Collection
Month	Amount	Jan	Feb	March	April	May	June	Total Collection	Balance at the end of June
Jan	$        50,000	$        10,000	$      15,000	$      25,000				$      50,000	$           -
Feb	$      100,000		$      20,000	$      30,000	$        50,000			$    100,000	$           -
March	$      120,000			$      24,000	$        36,000	$        60,000		$    120,000	$           -
April	$      105,000				$        21,000	$        31,500	$      52,500	$    105,000	$           -
May	$      140,000					$        28,000	$      42,000	$      70,000	$   70,000
June	$      160,000						$      32,000	$      32,000	$ 128,000
Total	$      675,000	$        10,000	$      35,000	$      79,000	$      107,000	$      119,500	$    126,500	$    477,000	$ 198,000
Receivable Balance at the end of June $198,000
b.) Average Daily Sales
In first Quarter = 270000/ 90 = $3,000
In Second Quarter = 405,000/ 90 = $4,500
Days Sales Outstanding (DSO) ratio = accounts receivable / average sales per day
In first Quarter = 146,000 / 3,000 = 48.67
In Second Quarter = 198,000 / 4,500= 44
C) Aging Schedule as of June 30
Month	Balance at the end of June	0-30	31-60	61-60	Total Outstanding
Jan	$                -	$               -	$              -	$              -	$               -
Feb	$                -	$               -	$              -	$              -	$               -
March	$                -	$               -	$              -	$              -	$               -
April	$                -	$               -	$              -	$              -	$               -
May	$        70,000	$               -	$      70,000	$              -	$        70,000
June	$      128,000	$      128,000	$              -	$              -	$      128,000
Total	$      198,000	$      128,000	$      70,000	$              -	$      198,000
d) Uncollected Balance Schedule as of June 30
Month	uncollected balance at the end of June	June	July	Aug	Total
Jan	$                -	$               -	$              -	$              -	$               -
Feb	$                -	$               -	$              -	$              -	$               -
March	$                -	$               -	$              -	$              -	$               -
April	$                -	$               -	$              -	$              -	$               -
May	$        70,000	$               -	$      70,000		$        70,000
June	$      128,000	$               -	$      48,000	$      80,000	$      128,000
Total	$      198,000	$               -	$    118,000	$      80,000	$      198,000