Use the \"percent of sales method\" of preparing pro forma financial statements
ID: 2736858 • Letter: U
Question
Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts receivable. Make the following assumptions: current year's sales are $45,450,000; current year's cost of goods sold is $26,950,000; sales are expected to rise by 20%. The firm's investment in accounts receivable in the current year is $8,600,000. The firm's marginal tax rate is 35%. What is the projection for next year's accounts receivable?
a. $11,345,000
b. $10,320,000
c. $9,575,000
d. $8,772,000
Explanation / Answer
Current percenatge of account receivable = Accounts Receivable / Sales
= 8600000/45450000
= 18.9219%
Next year projected sales = 45450000*120% i.e 54540000
Accounts receiavble using percenatge of sales = 54540000*18.9219% i.e 10320000
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