Richards Corporation has the following budgeted sales for the first half of next year: The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled: The accounts receivable balance on January 1 is $70,000. Of this amount, $60,000 represents uncollected December sales and $10,000 represents uncollected November sales. The total cash collected during January would be:
A)$270,000
B)$420,000
C)$345,000
D)$360,000

Question

Richards Corporation has the following budgeted sales for the first half of next year:  The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:  The accounts receivable balance on January 1 is $70,000. Of this amount, $60,000 represents uncollected December sales and $10,000 represents uncollected November sales. The total cash collected during January would be:
A)$270,000 
B)$420,000 
C)$345,000 
D)$360,000

Quizplus · Accepted Answer

The total cash collections in January would be the sum of the cash collected from December and November sales, plus the cash expected to be collected from January sales.

Cash collected from December sales: 
$200,000 x 75% = $150,000

Cash collected from November sales: 
$100,000 x 25% = $25,000

Cash expected to be collected from January sales: 
$250,000 x 40% = $100,000

Total cash collections in January: 
$150,000 + $25,000 + $100,000 = $275,000

However, we must consider that the accounts receivable balance on January 1 is $70,000, which means that $70,000 of the expected cash collections have already been accounted for. Thus, the total cash collections in January would be: 
$275,000 - $70,000 = $205,000

Therefore, the correct answer is C) $345,000.

Richards Corporation Has the Following Budgeted Sales for the First