Reference no: EM13892611
Swiss Valley Veterinary Products distributes animal health care products to commercial livestock producers throughout the United States and Europe. The terms of sale require cash payment within 30 days, and most producers take full advantage of this payment option. Swiss Valley buys health care products on credit from multinational pharmaceutical companies. The credit purchase terms require cash payment within 60 days. Sales are somewhat seasonal. The following table shows monthly activities for one of Swiss Valley's most important business segment - swine health care products. Cash collections are from customers and cash payments are to suppliers of swine health care products. The figures shown for Accounts receivable, Inventories, and Accounts payable represent month-end amounts. Some December amounts have been omitted for brevity.
Dollar amounts in thousands Dec Jan Feb Mar Apr May June
Sales $620 $650 $800 $880 $940 $850
Cost of goods sold 500 520 640 700 750 680
Gross profit $120 $130 $160 $180 $190 $170
Accounts receivable $ 500 610 630 790 865 925 830
Inventories 600 625 770 840 900 820 660
Accounts payable 1,100 985 1,130 1,315 1,410 1,370 1,113
Cash collections 510 630 640 805 880 945
Cash payments 640 480 525 665 710 760
Net cash flow (130) 150 115 140 170 185
1. Customers in March purchased $800,000 of swine health care products. Of this amount, how much did March customers still owe at month-end?
2. March cash collections totaled $640,000. Explain how this figure was determined.
3. What was the amount of swine health care products purchased in March from pharmaceutical suppliers?
4. March cash payments to suppliers totaled $25,000. How was this figure determined?
5. Which accounting attribute - current month's gross profits or net cash flow - seems to do the better job of predicting future (i.e., the next month's) net cash flow? Why?
6. Briefly explain why current period accrual earnings may be a better predictor of future operating cash flow than is current period operating cash flow.