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Computing Cash Collections and Ending Balances

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On March 1 of the current year, Spicer Corporation compiled information to prepare a cash budget
for March, April, and May. All of the company's sales are made on account. The following information
has been provided by Spicer's management:

Month Credit Sales
Jan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 (actual)
Feb. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 (actual)
Mar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 (estimated)
Apr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000 (estimated)
May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 (estimated

The company's collection activity on credit sales historically has been as follows:

Collections in the month of the sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50%
Collections one month after the sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Collections two months after the sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Spicer's total cash expenditures for March, April, and May have been estimated at $1,200,000 (an
average of $400,000 per month). Its cash balance on March 1 of the current year is $500,000. No
financing or investing activities are anticipated during the second quarter.
Compute Spicer's budgeted cash balance at the ends of March, April, and May.

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https://brainmass.com/business/accounting/computing-cash-collections-ending-balances-628054

Solution Summary

This solution illustrates how to compute cash collections given monthly credit sales and historical collection patterns, and how to computing the ending budgeted cash balance given the cash expenditures and beginning cash balance.

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