Bush Company expects May sales to be $20,000.Approximately 40% of sales are cash sales.Collection of credit sales are 50% in the month of sale,40% in the month following sale and 5% two months following sale.The remaining 5% is uncollectible.________ is the expected cash collection in May from May sales.
A) $4,000
B) $6,000
C) $8,000
D) $14,000

Question

Quizplus · Accepted Answer

The expected cash collection in May from May sales includes the cash sales and the portion of credit sales collected in the same month. Cash sales are 40% of $20,000, which is $8,000. Collection of credit sales in the month of sale is 50% of the credit sales. Since 60% ($12,000) of the sales are on credit (100% - 40% cash sales), 50% of $12,000 is $6,000. Therefore, the total expected cash collection in May is $8,000 (cash sales) + $6,000 (collected credit sales) = $14,000.

Bush Company Expects May Sales to Be $20,000