Mikhail Corporation has the following sales forecasts for the first three months of 2018: $$\begin{array} { l r }
\text { Month } & \text { Sales } \
\text { January } & \$ 36,000 \
\text { February } & 24,000 \
\text { March } & 40,000
\end{array}$$ Sixty-five percent of sales are collected in the month of the sale and the remainder are collected in the following month. Mikhail will borrow from its bank to maintain its minimum cash balance.
$\begin{array} { l }
\text { Accounts receivable balance (January 1, 2018)}&\$16,000\
\text {Cash balance (January 1, 2018) }&12,000\
\text {Minimum cash balance needed }&20,000\
\end{array}$

What is the cash balance at the end of January, assuming that cash is received only from customers and that $48,000 is paid out during January?
A)$19,400
B)$23,400
C)$20,000
D)$21,000

Question

Mikhail Corporation has the following sales forecasts for the first three months of 2018: $$\begin{array} { l r } 
\text { Month } & \text { Sales } \
\text { January } & \$ 36,000 \
\text { February } & 24,000 \
\text { March } & 40,000
\end{array}$$ Sixty-five percent of sales are collected in the month of the sale and the remainder are collected in the following month. Mikhail will borrow from its bank to maintain its minimum cash balance.
$\begin{array} { l  }
 \text { Accounts receivable balance (January 1, 2018)}&\$16,000\
 \text {Cash balance (January 1, 2018) }&12,000\
 \text {Minimum cash balance needed }&20,000\
\end{array}$

What is the cash balance at the end of January, assuming that cash is received only from customers and that $48,000 is paid out during January?
A)$19,400
B)$23,400
C)$20,000
D)$21,000

Quizplus · Accepted Answer

To calculate the cash balance at the end of January, we need to consider the cash received from sales in January, the collection from accounts receivable from December sales, and the cash balance at the beginning of January, minus the cash paid out during January.1. Cash received from January sales: 65% of $36,000 = $23,400.2. Collection from accounts receivable (December sales): Since it's given that the remainder of sales is collected in the following month, the entire $16,000 from accounts receivable will be collected in January.3. Beginning cash balance: $12,000.4. Cash paid out during January: $48,000.Total cash available before paying out = $23,400 (from January sales) + $16,000 (accounts receivable) + $12,000 (beginning cash) = $51,400.After paying out $48,000 in January, the ending cash balance = $51,400 - $48,000 = $3,400.However, since Mikhail Corporation will borrow to maintain its minimum cash balance of $20,000, and the calculated ending balance is below this minimum, the corporation will borrow enough to reach this minimum.Therefore, the correct cash balance at the end of January, after borrowing to meet the minimum requirement, is $20,000.

Mikhail Corporation Has the Following Sales Forecasts for the First