Schrandt Company, an importer and retailer of Polish pottery and kitchenware, prepares a monthly master budget. Data for the July master budget are given below: The June 30th balance sheet follows:
Actual sales for June and budgeted sales for July, August, and September are given below:
Sales are 20% for cash and 80% on credit. All credit sales are collected in the month following the sale. There are no bad debts.
The gross margin percentage is 40% of sales. The desired ending inventory is equal to 25% of the following month's sales. One fourth of the purchases are paid for in the month of purchase and the others are purchased on account and paid in full the following month.
The monthly cash operating expenses are $43,000, and the monthly depreciation expenses are $7,000.
What is the balance of the accounts receivable at the end of July?

Question

Schrandt Company, an importer and retailer of Polish pottery and kitchenware, prepares a monthly master budget. Data for the July master budget are given below: The June 30th balance sheet follows:
 Actual sales for June and budgeted sales for July, August, and September are given below:
 Sales are 20% for cash and 80% on credit. All credit sales are collected in the month following the sale. There are no bad debts.
The gross margin percentage is 40% of sales. The desired ending inventory is equal to 25% of the following month's sales. One fourth of the purchases are paid for in the month of purchase and the others are purchased on account and paid in full the following month.
The monthly cash operating expenses are $43,000, and the monthly depreciation expenses are $7,000.
What is the balance of the accounts receivable at the end of July?

Quizplus · Accepted Answer

First, let's calculate the total budgeted sales for July, which is $600,000 (given in the table).

Next, we need to find the budgeted credit sales for July, which is 80% of $600,000 = $480,000.

Since all credit sales are collected in the following month, the accounts receivable balance at the end of July will be the credit sales made in July that have not yet been collected.

To calculate this, we need to subtract the cash sales from the total sales for July:

Total sales for July = $600,000 
Cash sales (20% of total) = $120,000 
Credit sales (80% of total) = $480,000 
Total collections in August (all credit sales from July) = $480,000

Therefore, the accounts receivable balance at the end of July is the credit sales made in July (not yet collected) which is $480,000.

Hence, the correct answer is B.

Schrandt Company, an Importer and Retailer of Polish Pottery and Kitchenware