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# Cash collection and Pro-forma Balance Sheet

1) On March 31, 2007, Mike's Bike Shop had outstanding accounts receivable of \$17,500. Mike's sales are roughly evenly split between credit and cash sales, with the credit sales collected half in the month after the sale and the remainder 2 months after the sale. Historical and projected sales for the bike shop are given here:

Month Sales Month Sales

January \$15,000 March \$25,000
February 20,000 April (projected) 30,000

a) Under these circimstances, what should the balance in accounts receivable be at the end of April?

b) How much cash did Mike's realize during April from sales and collections.

2)Use the following industry-average ratios to construct a pro forma balance sheet for Phoebe's Cat Foods Inc.

Total asset turnover 1.5 times
Average collection period ( assume 365 day year) 15 days
Fixed asset turnover 5 times
Inventory turnover (based on cost of goods sold) 3 times
Current ratio 2 times
Sales ( all on credit ) \$ 3.0 million
Cost of goods sold 75% of sales
Debt Ratio 50%
Current Liabilities
Cash Long-term debt
Accounts receivable _____ Common stock plus ___
Net Fixed Assets \$_______ Retained Earnings \$_____

#### Solution Preview

1) On March 31, 2007, Mike's Bike Shop had outstanding accounts receivable of \$17,500. Mike's sales are roughly evenly split between credit and cash sales, with the credit sales collected half in the month after the sale and the remainder 2 months after the sale. Historical and projected sales for the bike shop are given here:

Month Sales Month Sales

January \$15,000 March \$25,000
February 20,000 April (projected) 30,000

a) Under these circimstances, what should the balance in accounts receivable be at the end of April?

The collection is 50% of the sales in the month, 25% in the next month and 25% in the second month after then sale. At Aptil end, 50% of April sales, 25% of March sales will be outstanding. The balance in accounts ...

#### Solution Summary

The solution has two questions - one relating to calculation of accounts receivable balance and cash collections and the second one relating to preparation of pro-forma balance sheet.

\$2.19