Boone Co.'s sales, based on past experience, are 20% cash and 80% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $54,000, of which $12,000 is from November sales. Total sales for January and February are budgeted to be $100,000 and $120,000, respectively.

What are Boone Co.'s budgeted cash receipts for February?

Question

What are Boone Co.'s budgeted cash receipts for February?

Quizplus · Accepted Answer

To calculate the budgeted cash receipts for February, we need to first determine how much of the accounts receivable balance from December and the credit sales from January and February are expected to be collected in February.

From the accounts receivable balance of $54,000, we know that $12,000 is from November sales, which leaves $42,000 for December credit sales. These December credit sales would be collected as follows:

- 40% in December = $16,800
- 50% in January = $21,000 ($42,000 x 50%)
- 10% in February = $4,200 ($42,000 x 10%)

Therefore, the expected collection of accounts receivable in February would be $16,800 (from December credit sales) + $21,000 (from January credit sales) + $120,000 (from February credit sales) = $157,800.

However, we need to adjust this amount for the fact that only 20% of sales are collected in cash. Therefore, the budgeted cash receipts for February would be $157,800 x 20% = $31,560.

Adding the cash sales for February ($120,000 x 20% = $24,000) gives us a total budgeted cash receipts for February of $31,560 + $24,000 = $55,560.

Finally, we need to subtract any cash collected in December and January from this total. From our calculations above, we know that $16,800 of the December credit sales were expected to be collected in December, and $21,000 of the January credit sales were expected to be collected in January. Therefore, the cash collected in those months would be $16,800 + $21,000 = $37,800.

Subtracting this amount from the total budgeted cash receipts for February gives us $55,560 - $37,800 = $17,760. Therefore, the answer is D) $109,400.

Boone Co's Sales, Based on Past Experience, Are 20% Cash and and 80