Problems :

1 G Company is preparing its cash budget for the next year.

Budgeted sales for four months are as follows :
April 80,000
May 160,000
June 240,000
July 80,000
Fifty percent of the total sales is cash . The balance , or the
credit sales , is collected in the following manner :
70% in the month following the sale
20% in the second month following the sale
10% in the third month following the sale

How much is the budgeted cash receipts in July ?

SOLUTION:
July cash sales (50% of total sales) + 70% of June credit sales + 20% of May credit sales + 10
credit sales

Credit Sale = Total Sales - Cash Sales

April
A. Total Sales ₱80,000.00
B. Cash Sales @50% ₱40,000.00
Credit or balance sale (A-B) ₱40,000.00
C. 70% of June month sale
D. 20% of May month sale
E. 10% in April month sale
Total (B+C+D+E)

2 All sales of P Company are on account . Budgeted sales for the

first quarter of 2008 are :
January 96,000
February 168,800
March 158,400

Based on the company's collection experience , 60% of sales is collected

in the month after the sale , 30% collected in the second month following
the sale, and the balance is uncollectible .

How much is the budgeted cash receipts for March ?

SOLUTION:
Receipt in March = (Amount of January x 30%) + (Amount of February x 60%) + (Amount o
= (96,000 x 0.30) + (168,000.00 x 0.60) + (158,400 x 0.00)
=₱28,000 + ₱101,280
=₱130,000.00
 ₱144,000.00

les + 20% of May credit sales + 10% of April

May June July

₱160,000.00 ₱240,000.00 ₱80,000.00
₱80,000.00 ₱120,000.00 ₱40,000.00
₱80,000.00 ₱120,000.00 ₱40,000.00
₱84,000.00
₱16,000.00
₱4,000.00
₱144,000.00

t of February x 60%) + (Amount of March x 0%)

+ (158,400 x 0.00)
Problem 3
O Company's budget committee came up with the company's
budgeted sales for the first five months of the budget year 200B :
January 76000
February 52000
March 56000
April 64000
May 68000

Historically , O Company
has had no significant bad debt experience with its customers ,
and the receivables have been collected in the following manner :
40% in the month of sales
30% in the month following the sale
25% in the second month following the sale
5% in the third month following the sale

However , due to the deteriorating economic conditions brought

about by the continuous increases in oil prices and other external factors ,
the budget committee decided that the cash forecast should include a
provision for bad debts of 2% on credit sales beginning with
the sales for the month of April .

Because of this change in the collection policy , how much is the total
cash inflow from April sales .

SOLUTION:
O Company
Cash Budgeted Sales
For the month of January, February, March, April, May, 20x

Month January
Forecast Sales 76,000

Cash Sales 40% 30,400

Bad Debts 2%
Collections of A/R
Lagged 1 Month 30%
Lagged 2 Months 25%
Lagged 3 Months 5%
Total Cash Receipts 30,400

Therefore, the total cash inflow of the month of April is 58,688.

nal factors ,

O Company
Cash Budgeted Sales
anuary, February, March, April, May, 20xx

February March April May

52,000 56,000 64,000 68,000

20,800 22,400 25,600 27,200

-512 -544

22,800 15,600 16,800 19,200

19,000 13,000 14,000
3,800 2,600
43,600 57,000 58,688 62,456
4 The following are taken from the balance sheet of
Juls Company as of December 31 , 200B :

Current assets
Cash on hand and in banks 341,600
Accounts Receivable 200,000
Merchandise inventory 308,400 850,000

Liabilities
Current Liabilities:
Notes payable 280,800
Accounts Payable 781,700 1,062,500
Long-term liabilities 3,000,000

What are company's current ratio and quick(acid test ratio)?

SOLUTIONS:

Current Ratio
Total Current Asset P 850,000
Total Current Liabilities P 1,062,500
Current Ratio (CA/CL) 8:1

Quick/Acid Test Radio

Quick Assets
Cash and Cash Equilvalents P 341,600
Accounts Receivables, net P200,000
Total Quick Assets P 541,000
Total Current Liabilities P1,062,500
Quick Ratio (QA/CL) 5:1:1

5 Following are selected financial and operating data taken from

the financial statements of A Corporation :
As of December 31
200B 200A
Cash 80,000 640,000
Notes and accounts receivable , net 400,000 1,200,000
Merchandise Inventory 720,000 1,200,000
Marketable securities -short term 240,000 80,000
Land and buildings , net 2,720,000 2,880,000
Bonds payable -long -term 2,160,000 2,240,000
Accounts Payable - trade 560,000 880,000
Notes payable-short-term 160,000 320,000

For the year ended December 31

 200B 200A
Sales ( 20% cash , 80% credit) 18,400,000 19,200,000
Cost of goods sold 8,000,000 11,200,000

Compute the following ratios :

1 Current ratio Dec. 31 , 200B
2 Quick (acid test ) ratio as of Dec. 31 ,200B
3 Accounts receivable turnover for 200B
4 Merchandise inventory turnover for 200B
5 The gross margin rate for 200A
6 The average age of accounts receivable for 200B (use 360 days)

SOLUTIONS:
1 Current Ratio Dec. 31, 200B
Current Assets/Current Liabilities
1,440,000/720,000
2

2 Quick (acid test) Ratio as of Dec. 31, 200B

Quick Assets/ Current Liabilities
80,000+400,000+240,000/720,000
1

3 Accounts receivable turnover or 200B

Net Credits sales/Ave. Accounts Receivable
18,400,000/ (1,200,000+400,000)/2
46

4 Merchandise Inventory Turnover for 200B

Cost of Goods sold/Average Inventory
8,000,000/(1,200,000+720,000)/2
8.33

5 The Gross margin rate for 200A

Gross profit/ Net sales x 100
(19,200,000- 11,200,000)/ 19,200,000 x100
42

6 The Average Age of accounts receivable for 200B (use 360 days)
Average Accounts Receivables x 360 Days)/ Credit Sales
800,000x360/18,320,000
15.72
use 360 days)