Student Services Incorporated ("SSI") acts as a wholesaler to the various student retail shops that operate on campuses throughout Canada. It supplies clothing, records, and confectionary items. The company has a $150,000 line of credit available with a local bank, and it draws on its account in amounts of $10,000 at a time. SSI has not drawn on the credit line yet. As at December 31, 2020, the firm had a cash balance of $14,000, which is the minimum balance that it wants to maintain. Any excess cash is used to repay the line of credit. [lgnore interest on the line of credit.] The following additional information is available. Actual Sales Forecasted sales October 2020 November 2020 $150,000 December 2020 $80,000 January 2021 February 2021 March 2021 $100,000 $200,000 $100,000 $60,000 $200,000 $140,000 $140,000 April 2021 May 2021 June 2021 Sales/Accounts Receivable: 80% of sales are on credit and terms are net 30 days (1 month). From past experience 60 percent of the accounts are collected 1 month after the sale, 30 percent are collected 2 months after the sale, and 10 percent are collected 3 months after the sale Bad debts are negligible. Cost of Goods Sold/Purchases: The goods are ordered, received, and paid for in the month prior to sale. Purchases are equal to 80% of next month's sales and the gross profit margin is 40%.
Student Services Incorporated ("SSI") acts as a wholesaler to the various student retail shops that operate on campuses throughout Canada. It supplies clothing, records, and confectionary items. The company has a $150,000 line of credit available with a local bank, and it draws on its account in amounts of $10,000 at a time. SSI has not drawn on the credit line yet. As at December 31, 2020, the firm had a cash balance of $14,000, which is the minimum balance that it wants to maintain. Any excess cash is used to repay the line of credit. [lgnore interest on the line of credit.] The following additional information is available. Actual Sales Forecasted sales October 2020 November 2020 $150,000 December 2020 $80,000 January 2021 February 2021 March 2021 $100,000 $200,000 $100,000 $60,000 $200,000 $140,000 $140,000 April 2021 May 2021 June 2021 Sales/Accounts Receivable: 80% of sales are on credit and terms are net 30 days (1 month). From past experience 60 percent of the accounts are collected 1 month after the sale, 30 percent are collected 2 months after the sale, and 10 percent are collected 3 months after the sale Bad debts are negligible. Cost of Goods Sold/Purchases: The goods are ordered, received, and paid for in the month prior to sale. Purchases are equal to 80% of next month's sales and the gross profit margin is 40%.
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 13P
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![Student Services Incorporated (“SSI") acts as a wholesaler to the various student retail shops that
operate on campuses throughout Canada. It supplies clothing, records, and confectionary items.
The company has a $150,000 line of credit available with a local bank, and it draws on its account
in amounts of $10,000 at a time. SSI has not drawn on the credit line yet. As at December 31,
2020, the firm had a cash balance of $14,000, which is the minimum balance that it wants to
maintain. Any excess cash is used to repay the line of credit. [lgnore interest on the line of
credit.] The following additional information is available.
Forecasted sales
$200,000
$100,000
$60,000
$200,000
$140,000
$140,000
Actual Sales
$100,000
November 2020 $150,000
$80,000
January 2021
February 2021
March 2021
October 2020
December 2020
April 2021
May 2021
June 2021
Sales/Accounts Receivable: 80% of sales are on credit and terms are net 30 days (1 month).
From past experience 60 percent of the accounts are collected 1 month after the sale,
30 percent are collected 2 months after the sale, and 10 percent are collected 3 months after the sale.
Bad debts are negligible.
Cost of Goods Sold/Purchases: The goods are ordered, received, and paid for in the month
prior to sale. Purchases are equal to 80% of next month's sales and the gross profit margin is
40%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F04655fa1-8a14-4287-9748-c095e4183a84%2F13d3acc7-3172-4c7b-aeb0-bd496c905d83%2F8eadjcr_processed.png&w=3840&q=75)
Transcribed Image Text:Student Services Incorporated (“SSI") acts as a wholesaler to the various student retail shops that
operate on campuses throughout Canada. It supplies clothing, records, and confectionary items.
The company has a $150,000 line of credit available with a local bank, and it draws on its account
in amounts of $10,000 at a time. SSI has not drawn on the credit line yet. As at December 31,
2020, the firm had a cash balance of $14,000, which is the minimum balance that it wants to
maintain. Any excess cash is used to repay the line of credit. [lgnore interest on the line of
credit.] The following additional information is available.
Forecasted sales
$200,000
$100,000
$60,000
$200,000
$140,000
$140,000
Actual Sales
$100,000
November 2020 $150,000
$80,000
January 2021
February 2021
March 2021
October 2020
December 2020
April 2021
May 2021
June 2021
Sales/Accounts Receivable: 80% of sales are on credit and terms are net 30 days (1 month).
From past experience 60 percent of the accounts are collected 1 month after the sale,
30 percent are collected 2 months after the sale, and 10 percent are collected 3 months after the sale.
Bad debts are negligible.
Cost of Goods Sold/Purchases: The goods are ordered, received, and paid for in the month
prior to sale. Purchases are equal to 80% of next month's sales and the gross profit margin is
40%.
Transcribed Image Text:Administrative Expense: The administrative expense is $8,000 per month (which includes $2,000
for depreciation expense) plus a bonus of 5 percent of sales realized during the last quarter of the
calendar year. This bonus is paid in February of each year.
Dividends: In March, $12,000 in dividends will be paid.
Taxes: The tax rate is 40 percent. For the past year, $4,000 in taxes must be paid by January 15,
and no other taxes are payable in the period January to April.
Salaries: Wages and salaries amount to 15 percent of the monthly dollar sales or $24,000,
whichever is greater.
Capital Expenditures: The company will buy new fixed assets for $40,000 in January. These
assets have a five-year life with no residual value.
Prepare a schedule of cash receipts, a schedule of cash payments and cash budget for the
period of January to April 2021.
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