Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table. Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.
-Noskey Corporation's budgeted total cash receipts in August are:

Question

Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table.  Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.
-Noskey Corporation's budgeted total cash receipts in August are:

Quizplus · Accepted Answer

Total credit sales = $400,000
5% of credit sales are uncollectible = $20,000
Collectible credit sales = $400,000 - $20,000 = $380,000
60% of collectible credit sales collected in the month of sale = 0.6 x $380,000 = $228,000
40% of collectible credit sales collected in the month following the sale = 0.4 x $380,000 = $152,000
Total cash receipts in August = $240,000 (cash sales) + $228,000 (credit sales collected in the month of sale) + 25% of $152,000 (credit sales collected in the month following the sale and paid in the month of purchase) = $299,400. Therefore, the answer is C.

Noskey Corporation Is a Merchandising Firm