Chapter 2: 17BP (page 116)

J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year:
September (actual)
$70,000
Fourth Quarter
October
$60,000
November
55,000
December
80,000
Experience has shown that 30 percent of sales are collected in the month of sale, 60 percent are collected in the following month, and 10 percent are never collected.
Prepare a schedule of cash receipts for J. Lo’s Clothiers covering the fourth quarter (October through December).

Short Answer

Expert verified

Schedule of cash receipts

	September	October	November	December
Credit sales	$70,000	$60,000	$55,000	$80,000
In month of sales @30%		18,000	16,500	24,000
One month after sales @ 60%		42,000	36,000	33,000
Total cash receipts		$60,000	$52,500	$57,000

Step by step solution

Cash receipt in the month of October

$\begin{array}{rcl} Cash receipt & = & (Sale of october \times 30 %) + (Sale of september \times 60 %) \\ = & ($ 60, 000 \times 30 %) + ($ 70, 000 \times 60 %) \\ = & $ 60, 000 \end{array}$

Cash receipt in the month of November

$\begin{array}{rcl} Cash receipt & = & (Sale of novermber \times 30 %) + (Sale of october \times 60 %) \\ = & ($ 55, 000 \times 30 %) + ($ 60, 000 \times 60 %) \\ = & $ 52, 500 \end{array}$

Cash receipt in the month of December

$\begin{array}{rcl} Cash receipt & = & (Sale of december \times 30 %) + (Sale of november \times 60 %) \\ = & ($ 80, 000 \times 30 %) + ($ 55, 000 \times 60 %) \\ = & $ 57, 000 \end{array}$

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Retained earning	Bond payable
Accounts payable	Accrued wages payable
Prepaid expenses	Accounts receivable
Plant and equipment	Capital in excess of par
Inventory	Preferred stock
Common stock	Marketable security

Current assets		Liabilities
Cash	\(15,000	Accounts payable	\)17,000
Accounts receivable	20,000	Notes payable	25,000
Inventory	30,000	Bonds payable	55,000
Prepaid expenses	12,500

Fixed assets		Stockholder’s equity
Plant and equipment (gross) Less: accumulated depreciation	\(255,000 51,000	Preferred stock	\)25,000
Net plant and equipment	\(204,000	Common stock	60,000
		Paid in capital	30,000
		Retained earnings	69,500
Total assets	\)281,500	Total liabilities and stockholder’s equity	\(281,500

Lancaster corporation
Sales	\(246,000
Cost of goods sold	122,000
Gross profit	\)124,000
Fixed charges (other than interest)	27,500
Income before interest and taxes	\(96,500
Interest	21,800
Income before taxes	\)74,700
Taxes (35%)	26,145
Income after taxes	$48,555

Short Answer

Step by step solution

Cash receipt in the month of October

Cash receipt in the month of November

Cash receipt in the month of December

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September (actual)	\(70,000
Fourth Quarter
October	\)60,000
November	55,000
December	80,000