Question

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Hamby Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Hamby Corporation
Balance Sheet
June 30
Assets
Cash	$	93,000
Accounts receivable		127,000
Inventory		45,000
Plant and equipment, net of depreciation		219,000
Total assets	$	484,000
Liabilities and Stockholders’ Equity
Accounts payable	$	80,000
Common stock		330,000
Retained earnings		74,000
Total liabilities and stockholders’ equity	$	484,000

The company managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $300,000, $320,000, $310,000, and $330,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $56,000. Each month $6,000 of this total amount is depreciation expense and the remaining $50,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

How much is the Company's expected cash collections in the month of August?

Multiple Choice

• $195,000

• $307,000

• $208,000

• $112,000

Answer 1

	ANSWER TO THE QUESTION
	CASH COLLECTION IN THE MONTH OF AUGUST		⃝ $307000
	HAMBY CORPORATION
	COMPUTATION OF CASH COLLECTION FOR THE MONTH OF AUGUST
	PARTILCURS	AMOUNT	AMOUNT
	COLLECTION FROM JULY MONTH SALES	($3,00,000*65%)	$               195,000.00
	COLLECTION FROM AUGUST MONTH SALES	($320000*35%)	$               112,000.00
	TOTAL COLLECTION IN THE MONTH OF AUGUST		$               307,000.00
	SINCE, QUESTION ASKED ONLY FOR COLLECTION IN THE MONTH OF AUGUST THAT MEANS COLLECTION FROM RECEIVABLES/DEBTORS
	IT IS ASSUMED THAT QUESTION DOES NOT MEAN CLOSING CASH BALANCE ON AUGUST
	PLEASE COMMENT IF QUESTION REQUIRE FURTHER WORKINGS