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 $4,670,000

Quarter 2 5,230,000

Quarter 3 2,850,000

Quarter 4 7,970,000

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 $5,000,000 and for the fourth quarter of the current year are $6,950,000.

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

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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

$  

$  

$  

$  

Received on account from:

Quarter 3, current year

  

Quarter 4, current year

  

  

Quarter 1, next year

  

  

  

Quarter 2, next year

  

  

  

Quarter 3, next year

  

  

Quarter 4, next year

  

  

  

  

Total cash receipts

$  

$  

$  

$  

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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

$  

$  

$  

$  

Received on account from:

Quarter 4, current year

  

Quarter 1, next year

  

  

Quarter 2, next year

  

  

Quarter 3, next year

  

  

Quarter 4, next year

  

Total cash receipts

$  

$  

$  

$  

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Previous Question 3 of 3001_Cornerstone Exercise 08.11 Algorithmic

Answer 1

	Working Note-
	As per the given information
			Current year ($)		Next Year ($)
		Quarter	3rd	4th	1st	2nd	3rd	4th
	a	Sales	5000000	6950000	4670000	5230000	2850000	7970000
		Expences Paid in cash (10% of sales )
	b	Expences Paid in cash	500000	695000	467000	523000	285000	797000
	c	3% Bad Debt.	150000	208500	140100	156900	85500	239100
		Collections
		65% in Quarter of sale
	d	65% of sales=	3250000	4517500	3035500	3399500	1852500	5180500
		25% in next quarter
	e	25% of sales =		1250000	1737500	1167500	1307500	712500
		7% in second next quarter
	f	7% of sales=			350000	486500	326900	366100
Q-1	CASH SALE & CREDIT SALE CALCULATION
			Current year ($)		Next Year ($)
		Quarter	3rd	4th	1st	2nd	3rd	4th
	a	Sales	5000000	6950000	4670000	5230000	2850000	7970000
		65% in Quarter of sale
	b	65% of sales= CASH SALE	3250000	4517500	3035500	3399500	1852500	5180500
	c	Credit sales=
		(Sales- Cash Sale)=(a-b)=	1750000	2432500	1634500	1830500	997500	2789500
		Note- Sale Collections in the same Quarter is called as Cash Sale and rest are called credit sales
Q-2	Shalimar Company
	Cash Receipts Budget
			Next Year ($)
		Receipts	1st	2nd	3rd	4th
	Current yr	3rd quarter	350000	0	0	0
	Current yr	4th quarter	1737500	486500	0	0
	Next Yr	1st Quarter	3035500	1167500	326900	0
	Next Yr	2nd Quarter	0	3399500	1307500	366100
	Next Yr	3rd Quarter	0	0	1852500	712500
	Next Yr	4th Quarter	0	0	0	5180500
		Total Receipt	5123000	5053500	3486900	6259100
Q-3	Shalimar Company
	Cash Receipts Budget
			Next Year ($)
		Receipts	1st	2nd	3rd	4th
	Current yr	3rd quarter	0	0	0	0
	Current yr	4th quarter	1737500	0	0	0
	Next Yr	1st Quarter	3035500	1167500	0	0
	Next Yr	2nd Quarter	0	3399500	1307500	0
	Next Yr	3rd Quarter	0	0	1852500	712500
	Next Yr	4th Quarter	0	0	0	5180500
		Total Receipt	4773000	4567000	3160000	5893000
	Note- Given that Because of recession the bad debt will be 10% .
	The collection of current quarter and next quarter will not get affected .
	Means , the second next quarter collection is not possible.