Historically, Pine Hill Wood Products has had no significant bad debt experience with its customers. There are no cash sales; all sales are made on credit. Payments for credit sales have been received as follows:
40 percent of credit sales in the month of the sale.
30 percent of credit sales in the first subsequent month.
25 percent of credit sales in the second subsequent month.
5 percent of credit sales in the third subsequent month.
The sales forecast is as follows.
January ……………….$95,000
February ……………… 65,000
March ………………… 70,000
April …………………. 80,000
May ………………….. 85,000
Required:
1. What is the forecasted cash inflow for Pine Hill Wood Products for May?
2. Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that its cash forecast should include a bad debt adjustment of 2 percent of credit sales, beginning with sales for the month of April. Because of this policy change, what will happen to the total expected cash inflow related to sales made in April? (CMA adapted)
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