Question 1: Determining cash collections on account
Fresh Company is preparing its cash results for the month of May. The following information is available concerning its account receivable:
Estimated credit sales for May $ 200,000
Actual credit sales for April $ 150,000
Estimated collection in May
for credit sales in May 20%
Estimated collection in May
for credit sales in April 70%
Estimated collections in May
for credit sales prior to April $12,000
Estimated write-offs in May
for uncollectible credit sales $ 8,000
Estimated bad debts expense in May
for credit sales in May $ 7,000
Required: What are the estimated cash receipts from account receivable collections in May?
Question 2: Determining cash collections on account
The following information was taken from the 2005 financial statement of Planet Corporation:
Accounts receivable, January 1, 2005 $ 21,600
Accounts receivable, December 31, 2005 $ 30,400
Sales on accounts and cash sales $ 438,000
Uncollectible accounts (bad debts) $ 1,000
No accounts receivable were written off or recovered during the year.
Required: Determine the cash collected from customers by Planet Corporation in 2005.
Question 3: Determining cash from operations and reconciling with accrual net income
The following information was taken from the 2005 financial statements of Zurich Corporation, a maker of Swiss watches:
Net Income $ (200,000)
Depreciation $ 50,000
Increase (decrease) in
Accounts receivable $ (140,000)
Inventories $ 25,000
Other current assets $ 10,000
Accounts payable $ 12,000
Accrued payables $ (25,000)
Interest payable $ 50,000
Required:
1. Calculate Zurich's cash flow from operating activities for 2005
2. Explain the reasons for the difference between the firm's net income and its cash flow from operating activities in 2005.