Ned's Co. has an average collection period of 45 days and an operating cycle of 130 days. It has a policy of keeping at least $10 on hand as a minimum cash balance, and has a beginning cash
Balance for the ﬁrst quarter of $20. Beginning receivables for the quarter amount to $35. Sales for
The ﬁrst and second quarters are expected to be $110 and $125, respectively, while purchases
Amount to 80% of the next quarter's forecast sales. The accounts payable period is 90 days.
What is the value of the receivables account at the end of the ﬁrst quarter?

Question

Quizplus · Accepted Answer

First, we need to calculate the cash cycle (operating cycle - average collection period):
Cash cycle = 130 - 45 = 85 days

Next, we need to calculate the ending cash balance for the first quarter:
Ending cash balance = beginning cash balance + cash receipts - cash disbursements

We can calculate cash receipts using the formula: sales/number of days in the quarter x number of days until payment (average collection period)
Cash receipts = (110/90) x 45 + (125/90) x 45 = $85.83

We can calculate cash disbursements using the formula: purchases/number of days in the quarter x number of days until payment (accounts payable period)
Purchases = 80% x 125 = $100
Cash disbursements = (100/90) x 90 = $100

Therefore, ending cash balance = 20 + 85.83 - 100 = $5.83

Finally, we can calculate the ending receivables balance using the formula: beginning receivables + sales - cash receipts
Ending receivables = 35 + 110 - 85.83 = $59.17

Thus, the value of the receivables account at the end of the first quarter is $55 (closest answer choice).

Ned's Co Has an Average Collection Period of 45 Days and and an Operating