Question

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

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

Homework Answers

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.

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