Sequoia Furniture Company’s sales over the past three months, half of which are for cash, were as follows:

March	April	May
$ 432,000	$ 682,000	$ 552,000

Assume that Sequoia’s collection period is 60 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?

Now assume that Sequoia’s collection period is 45 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?

Problem 3-5

Universal Products Company has almost finished its pro forma financial statements for 2022, as shown next.

Universal Products Company
Financial Statements, 2021 and Pro Forma 2022 ($ thousands)
INCOME STATEMENT
	Actual	Forecast
	2021	2022
Sales	$ 7,200	$ 7,600
Cost of goods sold	5,600	5,800
Operating expense	700	700
Depreciation expense	250	260
Interest expense	90	120
Earnings before tax	560	720
Tax	196	252
Net income	$ 364	$ 468

Universal Products Company
Financial Statements, 2021 and Pro Forma 2022 ($ thousands)
BALANCE SHEET
	Actual	Forecast
	2021	2022
Current assets	$ 3,700	$ 3,950
Net fixed assets	3,000
Total assets	$ 6,700
Current liabilities	$ 1,140	$ 1,260
Long-term debt	700	500
Owner’s equity	4,860
Total liabilities & equity	$ 6,700

Assume that Universal plans to purchase $600,000 in fixed assets during 2022 and to dispose of no fixed assets during 2022. What would be its forecast for net fixed assets in 2022?

Assume that Universal plans to have a dividend payout ratio of 50 percent in 2022 and will neither sell nor repurchase equity during 2022. What would be its forecast for owner’s equity in 2022?

Given the assumptions in questions (a) and (b), what is Universal’s projected external funding required for 2022?

Transcribed Image Text:

1. Collection period is 60 days Cash receipts Accounts receivable balance 2. Collection period is 45 days Cash receipts Accounts receivable balance 1. Collection period is 60 days Cash receipts Accounts receivable balance 2. Collection period is 45 days Cash receipts Accounts receivable balance

Answer rating: 100% (QA)

Lets first address Problem 36 which involves calculating cash receipts and accounts receivable balance for Sequoia Furniture Company in May given different collection periods Part 1 Collection period ... View the full answer