Question

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 $260,000, $375,000, and $400,000, 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 September from accounts receivable are estimated to be a.$223,600 b.$145,600 c.$168,000 d.$182,000

Answer 1

Answer:

Option (b) is correct.

Explanation:

Given that,

Budgeted sales in September = $260,000

Budgeted sales in October = $375,000

Budgeted sales in November = $400,000

Percent of merchandise sells for cash = 30%

Percent of merchandise sells on account = 70%

Out of the credit sales,

80% are expected to be collected in the month of the sale.

20% in the month following the sale.

Therefore, the cash collections in September from accounts receivable will include only 80% of the credit sales in September as Nuthatch corporations starts its operation on September 1, hence there will be no sales in August.

Cash Collections From Accounts Receivables;

= 80% of the credit sales in September

= 0.8 × (70% × $260,000)

= 0.8 × $182,000

= $145,600