Home Corporation will open a new store on January 1. Based on experience from its other retail outlets, Home Corporation is making the following sales projections:

Home Corporation estimates that 70% of the credit sales will be collected in the month following the month of sale, with the balance collected in the second month following the month of sale.
-Based on these data, the balance in accounts receivable on January 31 will be:
A)$40,000
B)$28,000
C)$12,000
D)$58,000

Question

Home Corporation will open a new store on January 1. Based on experience from its other retail outlets, Home Corporation is making the following sales projections:

Home Corporation estimates that 70% of the credit sales will be collected in the month following the month of sale, with the balance collected in the second month following the month of sale.
-Based on these data, the balance in accounts receivable on January 31 will be:
A)$40,000 
B)$28,000 
C)$12,000 
D)$58,000

Quizplus · Accepted Answer

According to the given data, the accounts receivable balance at the beginning of the month (January 1) was $28,000. During the month, credit sales of $100,000 were made, which would have increased the accounts receivable balance. However, cash collections of $88,000 were also made during the month, which would have reduced the accounts receivable balance. Therefore, we need to calculate the net increase or decrease to the balance.

Net increase = Credit sales - cash collections
Net increase = $100,000 - $88,000
Net increase = $12,000

This means that the accounts receivable balance increased by $12,000 during the month. So, the ending balance on January 31 would be the beginning balance of $28,000 plus the net increase of $12,000, which equals:

Ending balance = Beginning balance + net increase
Ending balance = $28,000 + $12,000
Ending balance = $40,000

Therefore, the best choice is A) $40,000.

Home Corporation Will Open a New Store on January 1