Question

Cornerstone Exercise 8.11 (Algorithmic)
Cash Receipts Budget and Accounts Receivable Aging Schedule

Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales:

Quarter 1	$4,700,000
Quarter 2	5,230,000
Quarter 3	6,680,000
Quarter 4	8,590,000

In Shalimar’s experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are $5,710,000 and for the fourth quarter of the current year are $7,170,000.

Required:

1. Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year.

Quarter	Cash Sales	Credit Sales
3, current year	$	$
4, current year
1, next year
2, next year
3, next year
4, next year		2. Construct a cash receipts budget for Shalimar Company for each quarter of the next year, showing the cash sales and the cash collections from credit sales. If an amount is zero, enter "0". Shalimar Company Cash Receipts Budget For the Coming Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Cash sales $ Correct 9 of Item 2 $ Correct 10 of Item 2 $ Correct 11 of Item 2 $ Correct 12 of Item 2 Received on account from: Quarter 3, current year Correct 15 of Item 2 Quarter 4, current year Correct 17 of Item 2 Correct 18 of Item 2 Quarter 1, next year Correct 20 of Item 2 Correct 21 of Item 2 Correct 22 of Item 2 Quarter 2, next year Correct 24 of Item 2 Correct 25 of Item 2 Correct 26 of Item 2 Quarter 3, next year Correct 28 of Item 2 Correct 29 of Item 2 3. What if the recession led Shalimar’s top management to assume that in the next year 10 percent of credit sales would never be collected? The expected payment percentages in the quarter of sale and the quarter after sale are assumed to be the same. How would that affect cash received in each quarter? Construct a revised cash budget using the new assumption. Shalimar Company Cash Receipts Budget For the Coming Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Cash sales $ Correct 9 of Item 3 $ Correct 10 of Item 3 $ Correct 11 of Item 3 $ Correct 12 of Item 3 Received on account from: Quarter 4, current year Correct 15 of Item 3 Quarter 1, next year Correct 17 of Item 3 Correct 18 of Item 3 Quarter 2, next year Correct 20 of Item 3 Correct 21 of Item 3 Quarter 3, next year Correct 23 of Item 3 Correct 24 of Item 3 Quarter 4, next year Correct 26 of Item 3 Total cash receipts $ Correct 28 of Item 3 $ Correct 29 of Item 3 $ Correct 30 of Item 3 $ Quarter 4, next year Correct 31 of Item 2 Correct 32 of Item 2 Correct 33 of Item 2 Correct 34 of Item 2 Total cash receipts $ Correct 36 of Item 2 $ Correct 37 of Item 2 $ Correct 38 of Item 2 $

Answer 1