P6-4 Predicting future cash flow (LO 6-2) Swiss Valley Veterinary Products distributes animal health care products to commercial live- stock producers throughout the United States and Europe. Its terms of sale require cash pay- ment within 30 days, and most customers 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 segments-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. ($ in thousands) Dec Dec Jan Jan Feb Mar Apr May June Sales S620 S650 $ 800 S 880 S940 S 850 Cost of goods sold 500 640 700 Gross profit 120 180 680 160 610 Accounts receivable Inventories Accounts payable S 500 600 1.100 790 840 625 985 865 900 1.410 830 660 1.113 1.130 1.315 510 Cash collections Cash payments Net cash flow 60 480 760 (130) 150 115 140 170 185 Required: 1. In March, customers purchased $800,000 of swine health care products. Of this amount how much did March customers still owe at month-end? 2. Cash collections totaled $640,000 in March. Explain how this figure was determined 3. What was the amount of swine health care products purchased in March from pharmaceu- tical suppliers? 4. March cash payments to suppliers totaled $525,000. Explain how this figure was determined, Problems / Discussion Questions 5. Which accounting attribute-current month's gross profits or current month's net cash flow does a 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