Korn Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}
&\text { October}&\text { November }&\text { December }\
\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \
\text { Cash sales } & 40,000 & 60,000 & 50,000 \
\text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\

\end{array}$

Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
(Appendix 10A) What are the anticipated cash receipts for November?
A) $107,500
B) $105,000
C) $110,000
D) $160,000

Question

Korn Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}
&\text { October}&\text {  November }&\text { December }\
\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \
 \text { Cash sales } & 40,000 & 60,000 & 50,000 \
 \text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\

\end{array}$

Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
(Appendix 10A) What are the anticipated cash receipts for November?
A) $107,500
B) $105,000
C) $110,000
D) $160,000

Quizplus · Accepted Answer

For November, the anticipated cash receipts include collections from October's credit sales and November's cash sales. October's credit sales were $100,000. Given the collection pattern, 50% of October's credit sales are collected in November, which is $50,000. However, a 5% discount is given for these collections, reducing the amount to $47,500 ($50,000 - 5% of $50,000). November's cash sales are $60,000. Therefore, the total anticipated cash receipts for November are $47,500 (from October's credit sales) + $60,000 (November's cash sales) = $107,500.

Korn Inc, Projects Sales for Its First Three Months of Operation