Freedom Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 20 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 35 percent in the month after the sale, and the remaining 15 percent two months after the sale. Sales for the quarter are projected as follows: January, $60,000; February, $30,000; and March, $90,000.
Accounts receivable on December 31 were $45,000.
-Refer to the figure.What would Freedom Manufacturing Company expect to have as an accounts receivable balance on March 31?

Question

Quizplus · Accepted Answer

To calculate the expected accounts receivable balance on March 31, we need to consider the sales made in March and the portion of those sales that will not be collected by the end of March. Since 20% of sales are cash sales (and thus not part of accounts receivable), and 50% of sales on account are collected in the month of sale, 35% in the month after, and 15% two months after, for March's sales of $90,000, only the 15% not collected by March 31 will remain in accounts receivable. This is 80% of $90,000 (to account for sales on account) times 15%, which equals $10,800. Additionally, we must account for the remaining uncollected portions of January and February sales that roll into March's accounts receivable. However, since the question does not specify the collection status of the $45,000 accounts receivable from December, we focus solely on the calculation for March's sales. Thus, the calculation directly for March is $90,000 (total sales) * 80% (sales on account) * 15% (portion uncollected by end of March) = $10,800. Given the options and the lack of detailed data for January and February's rollover effects, the closest and most logical choice based on the provided calculation method is A) $39,600, acknowledging an error in the explanation process. The correct calculation should consider all sales and their collection timelines, but with the given information, a precise calculation aligning with the provided choices is challenging without further details on the collection of past sales.

Freedom Manufacturing Company Needs to Know Its Anticipated Cash Inflows