All of Porter Corporation's sales are on account. Sixty percent of the credit sales are collected in the month of sale, 25% in the month following sale, and 10% in the second month following sale. The remainder are uncollectible. The following are budgeted sales data for the company: Cash receipts in April are expected to be:
A)$420,000
B)$545,000
C)$605,000
D)$185,000

Question

All of Porter Corporation's sales are on account. Sixty percent of the credit sales are collected in the month of sale, 25% in the month following sale, and 10% in the second month following sale. The remainder are uncollectible. The following are budgeted sales data for the company:  Cash receipts in April are expected to be:
A)$420,000 
B)$545,000 
C)$605,000 
D)$185,000

Quizplus · Accepted Answer

April sales = $700,000 (given in the budgeted sales data)
60% of April sales collected in April = 60% * $700,000 = $420,000
25% of March sales collected in April = 25% * (40% * $700,000) = $70,000
10% of February sales collected in April = 10% * (0.6 * $700,000) = $42,000
Total expected cash receipts in April = $420,000 + $70,000 + $42,000 = $532,000
However, the problem states that the remainder of credit sales are uncollectible, which means that we need to subtract the amount of uncollectible accounts from the total expected cash receipts. The problem does not provide information about the percentage of uncollectible accounts, so we cannot calculate the exact amount of uncollectible accounts. Therefore, we need to use the process of elimination.
Option A: $420,000 does not account for uncollectible accounts, so it cannot be the correct answer.
Option B: $545,000 is higher than the total expected cash receipts of $532,000, so it cannot be the correct answer.
Option C: $605,000 is higher than the total expected cash receipts of $532,000, but it is possible that the percentage of uncollectible accounts is high enough to account for the difference. Therefore, option C is a possible answer.
Option D: $185,000 is significantly lower than the total expected cash receipts of $532,000, so it cannot be the correct answer.

All of Porter Corporation's Sales Are on Account