Question

Use the information below for Nuthatch Corporation to answer the question that follow.

Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business—September, October, and November—are $232,000, $312,000, and $417,000, respectively. The company expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in the month following the sale.

The cash collections expected in October from accounts receivable are estimated to be

a.$207,200

b.$174,720

c.$248,640

d.$142,240

Answer 1

Credit Sales in October = Sales*70%  (as 30% sales are for cash, balance will be on credit)

= $312,000*70% = $218,400

80% of $218,400 will be collected in the month of October and 20% will be collected in November. 20% of credit sales in September will also be collected in the month of October.

Collection for October credit sales = $218,400*80% = $174,720

Collection from Accounts Receivable for September = Credit Sales in September*20%

= ($232,000*70%)*20% = $32,480

Cash collections expected in October from accounts receivable = $174,720+$32,480

= $207,200

Hence the correct option is a)$207,200.