Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $260,000, $375,000, and $400,000, respectively, for September, October, and November. 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 in October from accounts receivable are:
A) $246,400
B) $262,500
C) $210,000
D) $294,500

Question

Quizplus · Accepted Answer

October sales are $375,000. 30% of sales are for cash, so cash sales are $375,000 x 0.30 = $112,500. Of sales on account, 80% are collected in the month of the sale, so collections from September sales are $260,000 x 0.80 = $208,000. Total cash collections in October are $112,500 + $208,000 = $320,500. However, 20% of sales on account are collected in the month following the sale, so collections from October sales will be $375,000 x 0.20 = $75,000. Therefore, total cash collections in October are $320,500 - $75,000 = $245,500.

Nuthatch Corporation Began Its Operations on September 1 of the Current