Question

a. The following is adapted from Financial Management for Executives (2nd ed.): La Verne Company reports the sales and collection information below. Assume La Verne Company collects 20 percent of its sales in the month of the sale, 50 percent the next month, 25 percent the following month, and 5 percent is never collected. Compute the company’s cash collections for each month from January through April.

   Nov.         Dec. Jan.          Feb. Mar.          Apr.
Sales. . . . $200,000 $325,000 $250,000 $240,000 $260,000 $270,000

b. The following is adapted from Financial Management for Executives (2nd ed.): La Verne Company reports the purchase information below. Assume La Verne Company makes cash payments of 40 percent of its purchases in the month of the purchase and pays the remaining 60 percent the following month. Compute the company’s cash payments for each month from January through April.

        Dec.          Jan. Feb.         Mar. Apr.
Purcahse..... $210,000 $150,000 $170,000 $180,000 $190,000

c. The following is adapted from Financial Management for Executives (2nd ed.): Use the information below, from the La Verne Company, together with the information in Questions a and b, to construct a cash budget for the La Verne Company for January through April. The La Verne Company began January with a cash balance of $100,000.

                          Jan.   Feb. Mar.        Apr.
Miscellaneous cash payments . . . . . $25,000 $30,000 $22,000 $32,000

Answer 1