Question

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	$	84,000
Accounts receivable		144,000
Inventory		63,750
Plant and equipment, net of depreciation		223,000
Total assets	$	514,750
Liabilities and Stockholders’ Equity
Accounts payable	$	84,000
Common stock		349,000
Retained earnings		81,750
Total liabilities and stockholders’ equity	$	514,750

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

1. Estimated sales for July, August, September, and October will be $340,000, $360,000, $350,000, and $370,000, 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 75% 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 $44,000. Each month $6,000 of this total amount is depreciation expense and the remaining $38,000 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 Accounts Receivable balance on September 30?

Multiple Choice

• $234,000

• $227,500

• $122,500

• $356,500

Answer 1

Correct Option B i.e. $227,500
	July	August	September	October
Estimated Sales	340,000	360,000	350,000	370,000
Cash Collection in same month	119,000	126,000	122,500	129,500
Cash Collection in following month	144,000	221,000	234,000	227,500
Total collection	263,000	347,000	356,500	357,000
Accounts Receivable			227,500
			(Only 65% of september sales)