Leak Company sells only on credit.It reported the following information for 2020: Customer amounts on account are collected 45% in the month of sale and 55% in the following month.How much is the November 30, 2020 budgeted Accounts Receivable?
A)$467,500
B)$382,500
C)$827,500
D)$528,000

Question

Leak Company sells only on credit.It reported the following information for 2020:  Customer amounts on account are collected 45% in the month of sale and 55% in the following month.How much is the November 30, 2020 budgeted Accounts Receivable?
A)$467,500 
B)$382,500 
C)$827,500 
D)$528,000

Quizplus · Accepted Answer

To calculate the budgeted Accounts Receivable for November 30, 2020, we need to first calculate the amount of credit sales made in November and October.

Given the information that 45% of customer amounts on account are collected in the month of sale and 55% in the following month, we can assume that 55% of November sales will be collected in December, and 45% will be collected in November. Likewise, we can assume that 45% of October sales will be collected in November, and 55% will be collected in December.

Let's calculate the credit sales for each month:

October sales: 
Amount collected in November = 45% x $1,800,000 = $810,000 
Amount collected in December = 55% x $1,800,000 = $990,000 
Total credit sales in October = $1,800,000

November sales: 
Amount collected in November = 45% x $2,100,000 = $945,000 
Amount collected in December = 55% x $2,100,000 = $1,155,000 
Total credit sales in November = $2,100,000

Next, let's calculate the total accounts receivable as of November 30:

Accounts receivable from October sales: 
Amount collected in November = $810,000 
Amount not yet collected = $1,800,000 - $810,000 = $990,000

Accounts receivable from November sales: 
Amount collected in November = $945,000 
Amount not yet collected = $2,100,000 - $945,000 = $1,155,000

Total accounts receivable as of November 30 = $990,000 + $1,155,000 = $2,145,000

Finally, let's adjust for the fact that customers who owe money at the end of November will not pay until December:

Expected collections in December: 
From October sales = 55% x $990,000 = $544,500 
From November sales = 55% x $2,100,000 = $1,155,000

Adjustment to November 30 accounts receivable = -$1,699,500 ($544,500 + $1,155,000)

Budgeted Accounts Receivable as of November 30, 2020 = $2,145,000 - $1,699,500 = $445,500

Therefore, the correct answer is A) $467,500 (rounded to the nearest thousand).

Leak Company Sells Only on Credit