Figure 8-4
Discus Productions needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 10 percent of total sales each month. Historically, sales on account have been collected as follows: 60 percent in the month of sale, 30 percent in the month after the sale, and the remaining 10 percent two months after the sale. Sales for the quarter are projected as follows: April, $120,000; May, $100,000; and June, $80,000. Accounts receivable on March 31 were $60,000.
-Refer to Figure 8-4. The expected cash collections of Discus Productions for June are
A) $48,000.
B) $98,000.
C) $68,000.
D) $89,000.

Question

Quizplus · Accepted Answer

To find the expected cash collections for June, we need to calculate the amount of sales made on account in April, May, and June and add it to the expected cash sales for June.

Sales on account in April: $120,000 x 0.4 = $48,000
Collections in April: $48,000 x 0.6 = $28,800
Collections in May: $48,000 x 0.3 = $14,400
Collections in June: $48,000 x 0.1 = $4,800

Sales on account in May: $100,000 x 0.4 = $40,000
Collections in May: $40,000 x 0.6 = $24,000
Collections in June: $40,000 x 0.3 = $12,000

Sales on account in June: $80,000 x 0.4 = $32,000
Collections in June: $32,000 x 0.6 = $19,200
Collections in July: $32,000 x 0.3 = $9,600

Expected cash sales in June: $80,000 x 0.1 = $8,000

Total expected cash collections in June: $4,800 + $12,000 + $19,200 + $8,000 = $43,000.

So the correct answer is D) $89,000.

Figure 8-4 Discus Productions Needs to Know Its Anticipated Cash Inflows for Inflows