The Best Defense Corporation has just begun manufacturing burglar alarm systems called Offense. The sales estimate for April, the company’s first month of operations, is 100 systems. Sales are expected to increase to 150 systems in May and 200 systems in June, and then to stay at 250 systems each month for the rest of the year. Best is plan- ning to sell these systems for $320 each and to extend credit to its customers up to 60 days. Best gives no cash discounts. It expects to collect 10% of its accounts receivable in the month of sales, 30% in the month following sales, and 58% in the second month fol- lowing sales. It estimates that 2% of its sales will not be collectible.

Required: (1) Prepare a sales budget for the first six months of Best’s operations, including expected cash receipts from sales for each month.

(2) Do you agree with Best’s credit policy? If so, what do you like about it? If not, what concerns do you have about the policy? In either case, what do you recommend to improve Best's credit policy?

(3) How do you think the 2% of uncollectible sales should affect the accounting equation? Why? lpo8