Valley's managers have made the following additional assumptions and estimates: Estimated sales for July and August are $345,000 and $315,000 respectively Each month's sales are 20% cash sales and 80% credit sales. Each month's credit sales are collected 30% in the month of the sale and 70% in the month following the sale. All of the accounts receivable at June 30 will be collected in July Each month's ending inventory must equal 20% of the cost of the next month's sales. The Cost of Goods Sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July Monthly selling and administrative expenses are always $75,000. Each month $10,000 of this total amount is depreciation expense and the remaining $65,000 relates to expenses that are paid in the month they are incurred The company does not plan to buy or sell any plant and equipment during July. It will not borrow any money, pay any dividends, issue any common stock or repurchase any of its own common stock during July Required: Calculate the estimated account receivable turnover and inventory turnover for the month of July

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Valley's managers have made the following additional assumptions and estimates:

Estimated sales for July and August are $345,000 and $315,000 respectively
Each month's sales are 20% cash sales and 80% credit sales. Each month's credit sales are collected 30% in the month of the sale and 70% in the month following the sale. All of the accounts receivable at June 30 will be collected in July
Each month's ending inventory must equal 20% of the cost of the next month's sales. The Cost of Goods Sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July
Monthly selling and administrative expenses are always $75,000. Each month $10,000 of this total amount is depreciation expense and the remaining $65,000 relates to expenses that are paid in the month they are incurred
The company does not plan to buy or sell any plant and equipment during July. It will not borrow any money, pay any dividends, issue any common stock or repurchase any of its own common stock during July

Required:

Calculate the estimated account receivable turnover and inventory turnover for the month of July

6a Calculate estimated Accounts receivable turnover for July (round to 3 decimal places)
6b Calculate estimated Inventory turnover for July (round to 3 decimal places)

Cash
Accounts receivable
Inventory
Valley Manufacturing Inc
Balance Sheet
June 30, 2021
Assets
Plant and equipment, net of depreciation
Total Assets
Liabilities and Stockholders' Equity
Accounts payable
Common stock
Retained earnings
Total Liabilities and Stockholders' Equity
$
$
$
$
$
$
$
$
$
140,000
175,000
45,200
554,800
915,000
115,000
586,000
214,000
915,000

Expert Solution

Step 1 Introduction

Accounts Receivable Turnover :— It is calculated by dividing credit sales by average accounts receivable.

Inventory Turnover :— It is calculated by dividing cost of goods sold by average inventory.

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