Lee's Appliances forecasts the following sales figures for the next four months.Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the month following sale.What is Lee's estimated accounts receivable balance on July 31?

A) $150 000
B) $135 000
C) $75 000
D) $67 500

Question

Lee's Appliances forecasts the following sales figures for the next four months.Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the month following sale.What is Lee's estimated accounts receivable balance on July 31?

A) $150 000 
B) $135 000 
C) $75 000 
D) $67 500

Quizplus · Accepted Answer

To find the estimated accounts receivable balance on July 31, we need to calculate the credit sales and the collection of those sales for the next four months:

March credit sales: $200,000 x 70% = $140,000
April credit sales: $250,000 x 70% = $175,000
May credit sales: $300,000 x 70% = $210,000
June credit sales: $350,000 x 70% = $245,000

Total credit sales: $770,000

50% of March credit sales will be collected in April: $140,000 x 50% = $70,000
The other 50% of March credit sales will be collected in May: $140,000 x 50% = $70,000
50% of April credit sales will be collected in May: $175,000 x 50% = $87,500
The other 50% of April credit sales will be collected in June: $175,000 x 50% = $87,500
50% of May credit sales will be collected in June: $210,000 x 50% = $105,000
The other 50% of May credit sales will be collected in July: $210,000 x 50% = $105,000
50% of June credit sales will be collected in July: $245,000 x 50% = $122,500

Total collections for the next four months: $647,000

So, the estimated accounts receivable balance on July 31 is:

Accounts receivable = (Credit sales - Cash sales) - Collections
Accounts receivable = ($770,000 x 50%) - ($500,000 x 10%) - $647,000
Accounts receivable = $385,000 - $50,000 - $647,000
Accounts receivable = -$312,000 (a negative balance means that there will be no accounts receivable on July 31)

Therefore, the best choice is D) $67,500, which is not a valid option, and the answer is that there will be no accounts receivable balance on July 31.

Lee's Appliances Forecasts the Following Sales Figures for the Next