Romona Company expects its November sales to be 20% higher than its October sales of $160,000. All sales are on credit and are collected as follows: 30% in the month of the sale and 65% in the following month. Purchases were $60,000 in October and are expected to be $120,000 in November. Purchases are paid 40% in the month of purchase and 60% in the following month. The cash balance on November 1 is $13,400. The cash balance on November 30 will be

Question

Quizplus · Accepted Answer

First, we need to calculate the expected sales for November: 
November sales = $160,000 * 1.2 = $192,000

Next, we need to calculate the collections from October and November sales: 
October sales collected in October = $160,000 * 0.3 = $48,000 
October sales collected in November = $160,000 * 0.65 = $104,000 
November sales collected in November = $192,000 * 0.3 = $57,600 
November sales collected in December = $192,000 * 0.65 = $124,800

Total collections in November = $104,000 + $57,600 = $161,600

Now we need to calculate the payments for purchases: 
October purchases paid in October = $60,000 * 0.4 = $24,000 
October purchases paid in November = $60,000 * 0.6 = $36,000 
November purchases paid in November = $120,000 * 0.4 = $48,000 
November purchases paid in December = $120,000 * 0.6 = $72,000

Total payments in November = $36,000 + $48,000 = $84,000

Finally, we can calculate the ending cash balance: 
Beginning cash balance = $13,400 
Total collections in November = $161,600 
Total payments in November = $84,000 
Ending cash balance = $13,400 + $161,600 - $84,000 = $91,000

Therefore, the answer is B: $91,000.

Romona Company Expects Its November Sales to Be 20% Higher