Lakewood Jet Skis has budgeted sales for June and July at $420,000 and $480,000, respectively. Sales are 75% credit, of which 40% is collected in the month of sale and 60% is collected in the following month. What is the accounts receivable balance on July 31?

Question

Quizplus · Accepted Answer

The credit sales for June are 75% of $420,000 = $315,000
Out of this, 40% is collected in June = 40% * $315,000 = $126,000
The remaining 60% will be collected in July = 60% * $315,000 = $189,000

The credit sales for July are 75% of $480,000 = $360,000
Out of this, 40% is collected in July = 40% * $360,000 = $144,000
The remaining 60% will be collected in August = 60% * $360,000 = $216,000

Therefore, the accounts receivable balance on July 31 will be the sum of the remaining collections for June and July: $189,000 + $216,000 = $405,000. However, we must also subtract the amount collected in June that belongs to July sales: $405,000 - $60,000 = $345,000. Thus, the correct answer is (C) $216,000.

Lakewood Jet Skis Has Budgeted Sales for June and July