Spencer Company has budgeted sales for the upcoming months as follows: February$600,000March$615,000April$645,000May$670,000Seventy percent of the sales are credit sales, the remainder are made in cash. Credit sales are collected 40% in the month of sale, 50% in the month following the sale, and 10% in the second month following the sale.a. Compute Spencer's cash receipts for April.b. Compute Spencer's cash receipts for May.c. Compute the accounts receivable balance for May 31.
What will be an ideal response?
a. $631,350 = ($645,000 × .30) + ($645,000 × .70 × .40) + ($615,000 × .70 × .50) + ($600,000 × .70 × .10)
b. $657,400 = ($670,000 × .30) + ($670,000 × .70 × .40) + ($645,000 × .70 × .50) + ($615,000 × .70 × .10)
c. $326,550 = May ($670,000 × .70 × .60) + April ($645,000 × .70 × .10)
Cash collections for a month are calculated by multiplying sales revenue for that month by the percentage collected in cash, and also by the percentage of credit sales collected in the month of sale, and adding in the amount to be collected in cash from sales made in prior months. The accounts receivable balance in a month is calculated as the sales revenue earned to date that has not yet been collected in cash.
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What will be an ideal response?
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