Chapter 26, Problem 5QP

Calculating Cash Collections The Litzenberger Company has projected the following quarterly sales amounts for the coming year:

1. a. Accounts receivable at the beginning of the year are $335. The company has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following:

1. b. Rework (a) assuming a collection period of 60 days.
2. c. Rework (a) assuming a collection period of 30 days.

Summary Introduction

To compute: The cash collection in each of 4 quarters.

Cash Collection:

The receipts at the side of the cash account show the cash collection by the company. The company receives cash when there are cash sales and the collection from accounts receivable is also the cash collection of a company.

Explanation of Solution

Given,

Sales for Q1 are $740.

Sales for Q2 are $840.

Sales for Q3 are $910.

Sales for Q4 are $970.

Accounting receivables at the beginning of the year are $335.

Collection period is 45-days.

Table that shows the amount of cash collection in each quarter,

Particulars	Q1 ($)	Q2 ($)	Q3 ($)	Q4 ($)
Beginning Receivable	335	370	420	455
Sales	740	840	910	970
Cash Collections	(705)	(790)	(875)	(940)
Ending Receivables	370	420	455	485

Table (1)

Working notes:

Calculate the amount of ending receivable in Q1,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{45}{90}\\ =\$740\times \frac{45}{90}\\ =\$370\end{array}$

Calculate the cash collection in Q1,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$335+\$740-\$370\\ =\$705\end{array}$

Calculate the amount of ending receivable in Q2,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{45}{90}\\ =\$840\times \frac{45}{90}\\ =\$420\end{array}$

Calculate the cash collection in Q2,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$370+\$840-\$420\\ =\$790\end{array}$

Calculate the amount of ending receivable in Q3,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{45}{90}\\ =\$910\times \frac{45}{90}\\ =\$455\end{array}$

Calculate the cash collection in Q3,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$420+\$910-\$455\\ =\$875\end{array}$

Calculate the amount of ending receivable in Q4,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{45}{90}\\ =\$970\times \frac{45}{90}\\ =\$485\end{array}$

Calculate the cash collection in Q4,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$455+\$970-\$485\\ =\$940\end{array}$

Conclusion

Thus, the cash collection in Q1 is $705, Q2 is $790, Q3 is $875, and Q4 is $940.

Summary Introduction

To compute: The cash collection in each of 4 quarters. The collection period is 60 days.

Explanation of Solution

Given,

Collection period is 60-days.

Table that shows the amount of cash collection in each quarter,

Particulars	Q1 ($)	Q2 ($)	Q3 ($)	Q4 ($)
Beginning Receivable	335	493	560	607
Sales	740	840	910	970
Cash Collections	(582)	(773)	(863)	(930)
Ending Receivables	493	560	607	647

Table (2)

Working Notes:

Calculate the amount of ending receivable in Q1,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{60}{90}\\ =\$740\times \frac{60}{90}\\ =\$493\end{array}$

Calculate the cash collection in Q1,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$335+\$740-\$493\\ =\$582\end{array}$

Calculate the amount of ending receivable in Q2,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{60}{90}\\ =\$840\times \frac{60}{90}\\ =\$560\end{array}$

Calculate the cash collection in Q2,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$493+\$840-\$560\\ =\$773\end{array}$

Calculate the amount of ending receivable in Q3,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{60}{90}\\ =\$910\times \frac{60}{90}\\ =\$607\end{array}$

Calculate the cash collection in Q3,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$560+\$910-\$607\\ =\$863\end{array}$

Calculate the amount of ending receivable in Q4,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{60}{90}\\ =\$970\times \frac{60}{90}\\ =\$647\end{array}$

Calculate the cash collection in Q4,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$607+\$970-\$647\\ =\$930\end{array}$

Conclusion

Thus, the cash collection in Q1 is $582, Q2 is $773, Q3 is $863, and Q4 is $930.

Summary Introduction

To compute: The cash collection in each of 4 quarters. The collection period is 30days.

Explanation of Solution

Given,

Collection period is 30-days.

Table that shows the amount of cash collection in each quarter,

Particulars	Q1 ($)	Q2 ($)	Q3 ($)	Q4 ($)
Beginning Receivable	335	247	280	303
Sales	740	840	910	970
Cash Collections	(828)	(807)	(887)	(950)
Ending Receivables	247	280	303	323

Table (3)

Working notes:

Calculate the amount of ending receivable in Q1,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{30}{90}\\ =\$740\times \frac{30}{90}\\ =\$247\end{array}$

Calculate the cash collection in Q1,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$335+\$740-\$247\\ =\$828\end{array}$

Calculate the amount of ending receivable in Q2,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{30}{90}\\ =\$840\times \frac{30}{90}\\ =\$280\end{array}$

Calculate the cash collection in Q2,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$247+\$840-\$280\\ =\$807\end{array}$

Calculate the amount of ending receivable in Q3,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{30}{90}\\ =\$910\times \frac{30}{90}\\ =\$303\end{array}$

Calculate the cash collection in Q3,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$280+\$910-\$303\\ =\$887\end{array}$

Calculate the amount of ending receivable in Q4,

$\begin{array}{c}\text{Ending receivable}=\text{Sales}\times \frac{30}{90}\\ =\$970\times \frac{30}{90}\\ =\$323\end{array}$

Calculate the cash collection in Q4,

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$303+\$970-\$323\\ =\$950\end{array}$

Conclusion

Thus, the cash collection in Q1 is $828, Q2 is $807, Q3 is $887, and Q4 is $950.