Accounting – Compute Accounts Receivable

Accounting – Compute Accounts Receivable

Subject: Business    / Accounting
Question

21.02 “Logan Township acquired its water system from a private company on June 1. No receivables were acquired with the purchase. Therefore, total accounts receivable on June 1 had a zero balance.

Logan plans to bill customers in the month following the month of sale, and 70% of the resulting billings will be collected during the billing month. In the next following month, 90% of the remaining balance should be collectable. The remaining uncollectible amounts will relate to citizens who have moved away. Such amounts are never expected to be collected and will be written off.

Water sales during June are estimated at $4,000,000, and expected to increase 30% in July. August sales will be 10% less than July sales. ”

(a) For each dollar of sales, how much is expected to be collected?

(b) Estimate the monthly cash collections for June, July, August, and September.

(c) As of the end of August, how much will be the estimated amount of receivables from which future cash flows are anticipated?

21.03 “Scalia Systems manufactures rugged handheld computers for use in adverse working environments. Scalia tries to maintain inventory at 40% of the following month’s expected unit sales. Scalia began the year with 8,000 units in stock, based on the following unit sales projections prepared by the sales manager:

January 20,000

February 25,000

March 25,000

April 22,000

Prepare a schedule of planned unit production for January through March.

21.04 “Prepare a direct materials purchasing plan for January, February, and March, based on the following facts:

Lana Gonzales owns a business that assembles ceiling fan units. Each fan requires one motor system and four blades. Motors cost $40 each, and blades are $3.50 each. Lana is able to reliably obtain motors as needed, and does not maintain them in inventory. However, blades are stocked in inventory sufficient to produce 30% of the following month’s expected production. Planned production is as follows:

January 10,000

February 12,000

March 15,000

April 11,000

In accordance with the stocking plan, January’s beginning inventory included 12,000 blades.

21.05 “Nolan Johnson is CFO for a newly formed furniture manufacturing company. Below is the anticipated monthly production for the first year of operation, and beyond. Nolan is interested in learning which of the first twelve months will require cash outlays of more than $100,000 toward the purchase of lumber. Each unit requires 20 board feet of lumber at $5.80 per board foot. All lumber is purchased in the month prior to its expected use. Lumber purchases are paid for 10% in the month of purchase, 40% in the month following the month of purchase, and 50% in the second month following the month of purchase.

”

Month Units

January 0

February 800

March 500

April 1,200

May 700

June 900

July 300

August 600

September 800

October 1,300

November 400

December 400

January 600

Which months will require cash outlays in excess of the $100,000 amount? Does the production in any given month necessarily correspond to the cash flow for that same month? What are the business implications of your observation?

21.07 The chief financial officer for Cast In Stone concrete products had previously established a line of credit with a local bank that enables Cast In Stone to borrow 80% of the company’s inventory balance. The company currently has 1,000 units in stock, and is performing “on budget.” The budget anticipated that direct labor cost would be $15 per hour, and factory overhead is applied to production based on $7.50 per direct labor hour. Each unit requires 2.5 labor hours and 800 pounds of direct material. The direct material costs $0.10 per pound.

Determine the amount of credit available under the borrowing agreement.

22.03 “Nyman Painting Contractors specializes in providing painting services to support residential remodeling projects. Nyman bids jobs based on the following cost assumptions:

1 gallon of paint will cover 450 square feet of interior wall space.

300 square feet can be painted in 1 hour.

1 gallon of paint costs $25.

1 hour of direct labor costs $17.

The Sanchez residence was recently repainted. The job consisted of 18,000 square feet of interior wall space. Nyman received a $1 per gallon discount, and a total of $984 was expended for paint. Nyman paid $1,107 for direct labor. The painters took exactly 61.5 hours to paint the residence.

(a) Calculate variances for direct material and direct labor.

(b) Prepare journal entries to record the acquisition and utilization of materials and labor (variances are recorded into the accounts).