San Carlos College

Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

FORECASTING SHORT-TERM OPERATING FINANCIAL REQUIREMENTS

Problem 1

Ellis Sports Shop projects the following sales, P75,000 for April, P95,000 for May, and P110,000 for June. 90 % of Ellis’
sales are on credit with 60 % of receivables collected in the month after the sale and the rest of receivables collected in the
second month after the sale. February sales were P60,000, and March sales were P70,000. In the past Ellis’ bad debt
percentage has been zero and is expected to continue.

a) Prepare a monthly schedule of cash receipts for April – June.

Schedule of Cash Receipts

February March April May June July August

February 60,000 x .10 6,000
60,000 x .90 x .60 32,400
60,000 x .90 x .40 21,600
March 70,000 x .10 7,000
70,000 x .90 x .60 37,800
70,000 x .90 x .40 25,200
April 75,000 x .10 7,500
75,000 x .90 x .60 40,500
75,000 x .90 x .40 27,000
May 95,000 x .10 9,500
95,000 x .90 x .60 51,300
95,000 x .90 x .40 34,200
June 110,000 x .10 11,000
110,000 x .90 x .60 59,400
110,000 x .90 x .40 39,600
Total 6,000 39,400 66,900 75,200 89,300 93,600 39,600

b) What is the balance of Receivables at the end of June?

July August Total

May 95,000 x .90 x .40 34,200 34,200
June 110,000 x .90 x .60 59,400 59,400
110,000 x .90 x .40 39,600 39,600
Total 93,600 39,600 133,200

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San Carlos College
Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

Problem 2

Eddie’s Bar and Restaurant Supplies expects its revenues and, payments for the first part of the year to be:
Sales Payments
January 14,000 18,000
February 30,000 21,300
March 26,000 19,100
April 22,000 22,400
May 18,000 14,700

70% of the firm’s sales are on credit. Past experience shows that 40 % of accounts receivable are collected in the month
after sale, and the remainder are collected in the second month after sale. Prepare a schedule of cash receipts for March,
April and May. Eddie’s pays its payments in the following month. Eddie’s had a cash balance of P2,000 on March 1,
which is also its minimum required cash balance. There is an outstanding loan of P2,000 on March 1. Prepare a cash
budget for March, April and May.

March April May

Cash, beginning 2,000 2,780 8,160
Add: Collection
Cash Sales
March 26,000 x .30 7,800
April 22,000 x .30 6,600
May 18,000 x .30 5,400
Credit Sales
January 14,000 x .70 x .60 5,880
February 30,000 x .70 x .40 8,400
30,000 x .70 x .60 12,600
March 26,000 x .70 x .40 7,280
26,000 x .70 x .60 10,920
April 22,000 x .70 x .40 6,160
Total available cash 24,080 29,260 30,640
Less: Payments
February (21,300)
March (19,100)
April (22,400)
Available cash 2,780 10,160 8,240
Outstanding loan - (2,000) -
Cash, ending 2,780 8,160 8,240

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San Carlos College
Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

Problem 3

Frank’s Sporting Goods projects sales for the second quarter of 2024 of P100,000 for April, P120,000 for May and
P110,000 for June. 10 % of Frank’s sales are for cash, 70 % of accounts receivable are collected one month following the
sale, and the rest are collected two months following the sale. January sales were P40,000. February sales were P60,000,
and March sales were P80,000.

a. Prepare a monthly schedule of cash receipts for the second quarter of 2024.

Schedule of Cash Receipts – 2nd Quarter

April May June July August

Cash Sales
April 100,000 x .10 10,000
May 120,000 x .10 12,000
June 110,000 x .10 11,000
Credit Sales
February 60,000 x .90 x .30 16,200
March 80,000 x .90 x .70 50,400
80,000 x .90 x .30 21,600
April 100,000 x .90 x .70 63,000
100,000 x .90 x .30 27,000
May 120,000 x .90 x .70 75,600
120,000 x .90 x .30 32,400
June 110,000 x .90 x .70 69,300
110,000 x .90 x .30 29,700
Total 76,600 96,600 113,600 101,700 29,700

b. What is the balance in accounts receivable at the end of June?

July August Total

May 120,000 x .90 x .30 32,400 32,400
June 110,000 x .90 x .70 69,300 69,300
110,000 x .90 x .30 29,700 29,700
Total 101,700 29,700 131,400

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San Carlos College
Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

Problem 4

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year,
as shown in the company’s sales budget for the second quarter given below.

April May June Total

Budgeted sales (on account) P300,000 P500,000 P200,000 P1,000,000

From past experience, the company has learned that 20 % of a month’s sales are collected in the month of sale, another 70
% are collected in the month following sale, and the remaining 10 % are collected in the second month following sale.
Bad debts are negligible and can be ignored. February sales totalled P230,000, and March sales totalled P260,000.

a. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

Schedule of Cash Receipts – 2nd Quarter

April May June Total

February 230,000 x .10 23,000 23,000
March 260,000 x .70 182,000 182,000
260,000 x .10 26,000 26,000
April 300,000 x .20 60,000 60,000
300,000 x .70 210,000 210,000
300,000 x .10 30,000 30,000
May 500,000 x .20 100,000 100,000
500,000 x .70 350,000 350,000
June 200,000 x .20 40,000 40,000
Total 265,000 336,000 420,000 1,021,000

b. Assume that the company will prepare a budgeted statement of financial position as of June 30. Compute the accounts
receivable as of that date.

July August Total

May 500,000 x .10 50,000 50,000
June 200,000 x .70 140,000 140,000
200,000 x .10 20,000 20,000
Total 190,000 20,000 210,000

Problem 5

Rachel Crib Shop had sales of 3,000 units at P200 per unit last year. The marketing manager projects a 20 % increase in
unit volume this year with a 10% price increase. Returned merchandise will represent 5 % of the total sales. What is your
net peso sales projection for this year?

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San Carlos College
Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

Projected Sales
Total sales (3,000 x 1.20) 3,600
Less: Sales return (3,600 x 5%) 180
Net sales in units 3,420
Unit price (200 x 1.1) 220
Total sales in peso 752,400

Problem 6

Sales for Western Boot stores are expected to be 40,000 units for October. The company likes to maintain 15 % of unit
sales for each month in ending inventory. Beginning inventory for October is 8,500 units. How many units should
Western Boot produce for the coming month?

Sales 40,000
Add: Ending inventory (40,000 x 15 %) 6,000
Total 46,000
Less: Beginning inventory 8,500
Total units to be produced 37,500

Problem 7

Vitale Company had sales of 8,000 units in March. A 50 % increase is expected in April. The company will maintain 5 %
of expected unit sales for April in ending inventory. Beginning inventory for April was 400 units. How many units should
the company produce in April?

Sales (8,000 x 1.50) 12,000

Add: Ending inventory (12,000 x 5 %) 600
Total 12,600
Less: Beginning inventory 400
Total units to be produced 12,200

Problem 8

Brenda Company has beginning inventory of 14,000 units, will sell 50,000 units for the month, and desires to reduce
ending inventory to 40% of beginning inventory. How many units should Brenda produce?

Sales 50,000
Add: Ending inventory (14,000 x 40%) 5,600
Total 55,600
Less: Beginning inventory 14,000
Total units to be produced 41,600

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San Carlos College
Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

Problem 9

Victoria’s Apparel has forecast credit sales for the fourth quarter of the year as:

September (actual) P50,000

Fourth Quarter
October P40,000
November 35,000
December 60,000
Experience has shown that 20 % of sales are collected in the month of sale, 70 % in the following month, and 10 % are
never collected.

Prepare a schedule of cash receipts for Victoria’s Apparel covering the fourth quarter (October through December).

Schedule of Cash Receipts

September October November December January

September 50,000 x .20 10,000
50,000 x .70 35,000
October 40,000 x .20 8,000
40,000 x .70 28,000
November 35,000 x .20 7,000
35,000 x .70 24,500
December 60,000 x .20 12,000
60,000 x .70 42,000
Total 10,000 43,000 35,000 36,500 42,000

Problem 10

Christian Company has budgeted sales of its popular boomerang for the next four months as follows:

Sales in Units
April 50,000
May 75,000
June 90,000
July 80,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown
that end-of-month inventory level must equal 10 % of the following month’s sales. The inventory at the end of March was
5,000 units.

Prepare a production budget for the second quarter, in your budget, show the number of units be produced each month and
for the quarter in total.

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San Carlos College
Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

Production Budget – 2nd Quarter

April May June

Sales 50,000 75,000 90,000
Add: Ending inventory
April (75,000 x 10 %) 7,500
May (90,000 x 10 %) 9,000
June (80,000 x 10 %) 8,000
Less: Beginning inventory
April (5,000)
May (7,500)
June (9,000)
Total 52,500 76,500 89,000

Problem 11

Davis Corporation expects the following transactions in 2024. Their first year of operations:

Sales (90 % collected in 2024) P1,500,000

Bad debts write-offs 60,000
Disbursements of costs and expenses 1,200,000
Disbursements for income taxes 90,000
Purchases of fixed assets 400,000
Proceeds from issuance of ordinary shares 580,000
Proceeds from short-term borrowings 100,000
Payments from short-term borrowings 50,000
Depreciation on fixed assets 80,000

What is the cash balance at December 31, 2024?

Cash (1,500,000 x .90) 1,350,000
Accounts receivable 150,000
Sales 1,500,000
To record sales in 2024

Bad debts expense 60,000

Accounts receivable 60,000
To record bad debts write-offs

Cost and expenses 1,200,000

Cash 1,200,000
To record disbursements of costs and expenses

Income tax expense 90,000

Cash 90,000
To record disbursements for income taxes
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San Carlos College
Department: B.E.S.O.
Subject: Financial Management
Professor: Jeffrey M. Peralta, CPA

Fixed assets 400,000

Cash 400,000
To record purchases of fixed assets

Cash 580,000
Share capital – ordinary shares 580,000
To record proceeds from issuance of ordinary shares

Cash 100,000
Short-term payable 100,000
To record proceeds from short-term borrowings

Short-term payable 50,000

Cash 50,000
To record payments from short-term borrowings

Depreciation expense 80,000

Accumulated depreciation 80,000
To record depreciation on fixed assets

Cash sales 1,350,000

Disbursements of costs and expenses (1,200,000)
Disbursements for income taxes (90,000)
Purchases of fixed assets (400,000)
Proceeds from issuance of ordinary shares 580,000
Proceeds from short-term borrowings 100,000
Payments from short-term borrowings (50,000)
Cash balance, December 31, 2024 290,000

-END-

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