BarnBurner Music, a music publishing firm located in Tennessee, bills its clients on the first of the month. For example, any sale made in the month of July is billed August 1 and is due September 1. Clients traditionally pay as follows: 50% at the end of the first month, 40% at the end of the second month, 8% at the end of the third month, and 2% default on their bills. The firm's CEO wants to know the anticipated cash flow for April. Use the following information to estimate April cash flows.

Question

Quizplus · Accepted Answer

To estimate the April cash flow, we need to consider the payments received in the month of April from clients who were billed on March 1. According to the given payment schedule, clients pay 50% at the end of the first month, which means they will pay 50% of their March bills at the end of March.

Assuming BarnBurner Music has $160,000 in sales in March, then the March billings would be $80,000 (50% of sales) due at the end of March. In addition, we need to factor in the 2% default rate, which would mean that $1,600 ($80,000 * 2%) would not be received.

So, the estimated cash flow for April would be:
$80,000 (March billings) - $1,600 (default rate) = $78,400

Therefore, the best answer is C) $84,640.

BarnBurner Music, a Music Publishing Firm Located in Tennessee, Bills