Question

The Task Company is beginning operations in May 2020. They have budgeted May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. 10% of each month's sales will represent cash sales; 75% of the balance will be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is bad debts.

What is the amount of cash to be collected in the month of August?

Select one:

a. $ 35,946

b. $ 43,740

c. $ 40,106

d. $ 39,746

Answer 1

Ans.	Option c   $40,106
	TASK   COMPANY
	Expected Collections from Customers
		August
	Cash sales	$3,800
	Collection from June credit sales	1836
	Collection from July credit sales	6120
	Collection from August credit sales	28350
	Total cash collected in August	$40,106
	*WORKING NOTES:
		May	June	July	August
	Cash sales = Total sales * 10%	$34,000 * 10%	$40,000 * 10%	$42,000 * 10%	$38,000 * 10%
	Cash sales	$3,400	$4,000	$4,200	$3,800
	*Cash sales is 10% of total sales so the credit sales wil be 90% of total sales (i.e. 100% - 10%).
		May	June	July	August
	Credit sales = Total sales * 90%	$34,000 * 90%	$40,000 * 90%	$42,000 * 90%	$38,000 * 90%
	Credit sales	$30,600	$36,000	$37,800	$34,200
	*Calculations for collections from credit sales :
	Collection from May credit sales	$30,600 * 6%
	Collection from June credit sales	$36,000 * 17%
	Collection from July credit sales	$37,800 * 75%