Question

Refer to the data for Scott Products Inc. in Problem 9–21. The company’s president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:
1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from July, August, and September are collected over a three-month period, with 25% collected in the month of sale, 60% collected in the month following sale, and 15% in the second month following sale. Credit sales from May and June are collected during the third quarter using the collection percentages specified in Problem 9–21.
In Problem 9–21
2. The company maintains its ending inventory levels for July, August, and September at 25% of the cost of merchandise to be sold in the following month. The merchandise inventory at June 30 remains $18,000 and accounts payable for inventory purchases at June 30 remains $11,700. All other information from Problem 9–21 that is not referred to above remains the same.
Required:
1. Using the president’s new assumptions in (1) above, prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.
2. Using the president’s new assumptions in (2) above, prepare the following for merchandise inventory:
a. A merchandise purchases budget for July, August, and September.
b. A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.
3. Using the president’s new assumptions, prepare a cash budget for July, August, and September and for the quarter in total.
4. Briefly explain how the president’s revised assumptions affect the cash budget.


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  • CreatedJuly 08, 2015
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