Stuart Pointers Corporation expects to begin operations on January 1, year 1; it will operate as a specialty sales company that sells laser pointers over the Internet. Stuart expects sales in January year 1 to total $260,000 and to increase 20 percent per month in February and March. All sales are on account. Stuart expects to collect 70 percent of accounts receivable in the month of sale, 21 percent in the month following the sale, and 9 percent in the second month following the sale. Required Prepare a sales budget for the first quarter of year 1. Determine the amount of sales revenue Stuart will report on the year 1 first quarterly pro forma income statement. Prepare a cash receipts schedule for the first quarter of year 1. Determine the amount of accounts receivable as of March 31, year 1.

Explanation:

The preparation of sales budget for the first quarter of year

Sales budget for the first quarter

                              Jan                 Feb          March

Sales                    $260,000    $312,000    $374,400

Working Note

For Feb Sales = $260,000 × (100 + 20%)

= $260,000 × 120%

= $312,000

For March Sales = $312,000 × 120%

= $374,400

The amount of sales revenue Stuart will report on the year 1 first quarterly pro forma income statement is shown below:-

Jan Sales = $260,000

Feb Sales = $260,000 × (100 + 20%)

= $260,000 × 120%

= $312,000

March Sales = $312,000 × 120%

= $374,400

Total Sales = $260,000 + $312,000 + $374,400

= $946,400

The preparation of cash receipts schedule for the first quarter of year is shown below:-

                                        Jan                 Feb                   March

Jan Sales collection    $182,000          $54,600          $23,400

                   ($260,000 × 70%)    ($260,000 × 21%)   ($260,000 × 9%)

Feb Sales collection                             $218,400           $65,520

                                                     ($312,000 × 70%)    ($312,000 × 21%)

March Sales collection                                                      $262,080

                                                                                      ($374,400 × 70%)

Total cash collections  $182,000         $273,000           $351,000

The amount of accounts receivable is given below:-

                                    Receivables

Out of Feb Sales            $28,080

($312,000 × 9%)

Out of March Sales         $112,320

($374,400 × (21% + 9%))

Total receivables            $140,400

answer the law of increasing costs;