Pardee Company makes 30% of its sales for cash and 70% on account.60% of the account sales are collected in the month of sale,25% in the month following sale,and 12% in the second month following sale.The remainder is uncollectible.The following information has been gathered for Pardee's first year of operations: Total cash receipts in Month 3 will be:

Question

Pardee Company makes 30% of its sales for cash and 70% on account.60% of the account sales are collected in the month of sale,25% in the month following sale,and 12% in the second month following sale.The remainder is uncollectible.The following information has been gathered for Pardee's first year of operations:  Total cash receipts in Month 3 will be:

Quizplus · Accepted Answer

Total sales for the year = 100%
Cash sales = 30% of total sales
Account sales = 70% of total sales

For account sales:
60% collected in the month of sale = 42% of total sales (70% x 60%)
25% collected in the month following sale = 17.5% of total sales (70% x 25%)
12% collected in the second month following sale = 8.4% of total sales (70% x 12%)
Uncollectible accounts = 2.1% of total sales (100% - 42% - 17.5% - 8.4%)

Total cash collected:
Month 1: 0
Month 2: 0
Month 3: 
Cash sales + 60% of account sales collected in month of sale = 30% + 42% = 72%
Total cash receipts in Month 3 = 72% of total sales = 0.72 x total sales

Total sales = $150,000 (not given, but assumed for calculation purposes)
Total cash receipts in Month 3 = 0.72 x $150,000 = $108,000

However, we need to find the cash receipts only for Month 3. 
Total account sales for the year = 70% x $150,000 = $105,000
60% of account sales collected in month of sale = 60% x $105,000 = $63,000
Total cash receipts in Month 3 = Cash sales + 60% of account sales collected in month of sale
= $45,000 + $63,000 = $108,000
Therefore, the answer is B) $53,290.

Pardee Company Makes 30% of Its Sales for Cash and 70