Michael Corporation has the following sales forecasts for the first three months of 2006: Sixty-five percent of sales are collected in the month of the sale and the remainder are collected in the following month.
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) $20,600
D) $21,000

Question

Michael Corporation has the following sales forecasts for the first three months of 2006:  Sixty-five percent of sales are collected in the month of the sale and the remainder are collected in the following month.
 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) $20,600 
D) $21,000

Quizplus · Accepted Answer

First, we need to calculate the total sales for January, February, and March:

January sales: $90,000 x 65% = $58,500 
February sales: $80,000 x 65% = $52,000 
March sales: $100,000 x 65% = $65,000

Next, we need to calculate the collections for each month:

January collections: $58,500 
February collections: ($58,500 x 35%) + $52,000 = $71,925 
March collections: ($52,000 x 35%) + $65,000 = $81,750

Now we can calculate the cash balance at the end of January: 
Starting cash balance: $0 
January collections: $58,500 
January cash outflows: $48,000 
Ending cash balance: $10,500

Therefore, choice B is correct with an ending cash balance of $23,400.

Michael Corporation Has the Following Sales Forecasts for the First