Wichita Industries' sales are 10% for cash and 90% on credit.Credit sales are collected as follows: 30% in the month of sale,50% in the next month,and 20% in the following month.On December 31,the accounts receivable balance includes $12,000 from November sales and $42,000 from December sales.Assume that total sales for January and February are budgeted to be $50,000 and $100,000,respectively.What are the expected cash receipts for February from current and past sales?

Question

Quizplus · Accepted Answer

- 90% of sales are on credit, so of the budgeted sales of $50,000 for January, $45,000 are expected to be on credit (90% x $50,000).
- Of the $45,000 expected credit sales in January, 30% are expected to be collected in January and 50% in February. This means that $13,500 (30% x $45,000) is expected to be collected in January and $22,500 (50% x $45,000) is expected to be collected in February.
- Of the $42,000 accounts receivable balance from December sales, 50% are expected to be collected in January and 20% in February. This means that $21,000 (50% x $42,000) is expected to be collected in January and $8,400 (20% x $42,000) is expected to be collected in February.
- Of the $12,000 accounts receivable balance from November sales, 20% is expected to be collected in January. This means that $2,400 (20% x $12,000) is expected to be collected in January.
- Therefore, the total expected cash receipts for February from current and past sales are $22,500 + $8,400 + $2,400 = $33,300. Adding this to the expected cash receipts from January ($13,500 + $21,000 = $34,500) gives a total expected cash receipts for January and February of $68,800. However, this includes the 30% of credit sales from January that are expected to be collected in January, so we need to subtract this amount to only get the expected cash receipts from past sales. This gives a final answer of $68,800 - $13,500 = $55,300, which corresponds to answer choice B.

Wichita Industries' Sales Are 10% for Cash and 90% on Credit.Credit