Sherman Company provides services in the retail flooring industry. The following information is available for 20x5: Twenty percent of the firm'S services are for cash and the remaining 80% are on account. Of the credit services, 40% are collected in the month that the service is provided, with the remaining 60% collected in the following month. Services provided in January are expected to total $250,000 and grow at the rate of 5% per month thereafter. January's cash collections are expected to be $240,400, and month-end receivables are forecast at $120,000. Monthly cash operating costs and depreciation during the first quarter of the year are approximated at $250,000 and $15,000, respectively. Sherman's December 31, 20x4 balance sheet revealed accounts payable balances of $28,000. This amount is related to the company's operating costs and is expected to grow to $36,000 by the end of 20x5's first quarter. All operating costs are paid within 30 days of incurrence. Company policy requires that a $20,000 minimum cash balance be maintained, and Sherman's 20x4 year-end balance sheet showed that the firm was in compliance with policy by having cash of S23,000. Required: A Determine the sales revenue earned that will appear on the income statement for the quarter ended March 31, 20x5. B. Compute the company's first-quarter cash collections. C. Compute the cash balance that would appear on the March 31, 20x5 balance sheet. D. What are some possible actions the company could pursue if, at any time during the quarter, it finds that the cash balance has fallen below the stated minimum
Sherman Company provides services in the retail flooring industry. The following information is available for 20x5: Twenty percent of the firm'S services are for cash and the remaining 80% are on account. Of the credit services, 40% are collected in the month that the service is provided, with the remaining 60% collected in the following month. Services provided in January are expected to total $250,000 and grow at the rate of 5% per month thereafter. January's cash collections are expected to be $240,400, and month-end receivables are forecast at $120,000. Monthly cash operating costs and depreciation during the first quarter of the year are approximated at $250,000 and $15,000, respectively. Sherman's December 31, 20x4 balance sheet revealed accounts payable balances of $28,000. This amount is related to the company's operating costs and is expected to grow to $36,000 by the end of 20x5's first quarter. All operating costs are paid within 30 days of incurrence. Company policy requires that a $20,000 minimum cash balance be maintained, and Sherman's 20x4 year-end balance sheet showed that the firm was in compliance with policy by having cash of S23,000. Required: A Determine the sales revenue earned that will appear on the income statement for the quarter ended March 31, 20x5. B. Compute the company's first-quarter cash collections. C. Compute the cash balance that would appear on the March 31, 20x5 balance sheet. D. What are some possible actions the company could pursue if, at any time during the quarter, it finds that the cash balance has fallen below the stated minimum
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sherman Company provides services in the retail flooring industry. The following information is available for 20x5:
Twenty percent of the firm's services are for cash and the remaining 80% are on account. Of the credit services, 40% are collected in the month that the service is provided, with the
remaining 60% collected in the following month.
Services provided in January are expected to total $250,000 and grow at the rate of 5% per month thereafter.
January's cash collections are expected to be $240,400, and month-end receivables are forecast at $120,000.
Monthly cash operating costs and depreciation during the first quarter of the year are approximated at $250,000 and $15,000, respectively.
Sherman's December 31, 20x4 balance sheet revealed accounts payable balances of $28,000. This amount is related to the company's operating costs and is expected to grow to
$36,000 by the end of 20x5's first quarter. All operating costs are paid within 30 days of incurrence.
Company policy requires that a $20,000 minimum cash balance be maintained, and Sherman's 20x4 year-end balance sheet showed that the firm was in compliance with policy by
having cash of $23,000.
Required:
A.
Determine the sales revenue earned that will appear on the income statement for the quarter ended March 31, 20x5.
Compute the company's first-quarter cash collections.
Compute the cash balance that would appear on the March 31, 20x5 balance sheet.
D
B.
What are some possible actions the company could pursue if, at any time during the quarter, it finds that the cash balance has fallen below the stated minimum.
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