McLeod Fries Inc.has budgeted sales for June and July at $680,000 and $720,000,respectively.Sales are 80% credit,of which 70% is collected in the month of sale and 30% is collected in the following month.What is the budgeted accounts receivable balance on July 31?

Question

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First, we need to calculate how much of the credit sales from June and July will be collected in July and August:

June credit sales collected in July: 80% x 70% x $680,000 = $380,800
June credit sales collected in August: 80% x 30% x $680,000 = $163,200
July credit sales collected in July: 80% x 70% x $720,000 = $403,200
July credit sales collected in August: 80% x 30% x $720,000 = $172,800

Next, we can calculate the total accounts receivable balance on July 31:

Accounts receivable balance on July 1: 20% x $680,000 = $136,000
Add: June credit sales collected in July: $380,800
Add: July credit sales collected in July: $403,200
Subtract: June credit sales collected in August: $163,200
Subtract: July credit sales collected in August: $172,800

Total accounts receivable balance on July 31: $586,200

Therefore, the best choice is B) $172,800.