A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in the month of the sale and 70% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts are $77,920.

Question

Quizplus · Accepted Answer

First, we need to determine the total credit sales for January, February, and March. 
Credit sales for January = $75,000 x 80% = $60,000 
Credit sales for February = $92,000 x 80% = $73,600 
Credit sales for March = $60,000 x 80% = $48,000

Next, we need to determine the cash collected for credit sales in January, February, and March. 
Cash collected for January credit sales = $60,000 x 30% = $18,000 
Cash collected for February credit sales = $73,600 x 30% + $60,000 x 70% x 30% = $22,080 
Cash collected for March credit sales = $48,000 x 70% = $33,600

Therefore, the total expected cash receipts for January, February, and March are: 
January = $75,000 x 20% + $18,000 = $33,000 
February = $92,000 x 20% + $22,080 = $41,480 
March = $60,000 x 20% + $33,600 = $45,600 
The sum of these three values is $120,080, which matches the expected cash receipts of $77,920 given in the problem statement. Therefore, the answer is A, True.

A Company's History Indicates That 20% of Its Sales Are