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Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the...

Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business September, October, and November are $243,000, $307,000, and $429,000, respectively. The company expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in the month following the sale.

The cash collections expected in October from accounts receivable are estimated to be

a.$247,128

b.$205,940

c.$171,920

d.$137,900

Solutions

Expert Solution

Solution:

As per the information given in the question

The company expects to sell 30% of its merchandise for cash.

Of sales on account, 80% are expected to be collected in the month of the sale and

20% of the sales on account are expected to be collected in the month following the sale.

a.Cash collections expected in October from accounts receivable of October

Amount of accounts receivable of October = Sales in October * ( 100 % – 30 % )

= $ 307,000 * 70 %

= $ 214,900

Thus the accounts receivable of October = $ 214,900

Cash collected from accounts receivable of the month of October = Accounts receivable of October * 80 %

= $ 214,900 * 80 %

= $ 171,920

The Cash collected from accounts receivable of the month of October = $ 171,920

b.Cash collections expected in October from accounts receivable of September

Amount of accounts receivable of September = Sales in September * ( 100 % – 30 % )

= $ 243,000 * 70 %

= $ 170,100

Thus the accounts receivable of September = $ 170,100

Cash collected from accounts receivable of the month of September = Accounts receivable of September * 20 %

= $ 170,100 * 20 %

= $ 34,020

Thus the Cash collected from accounts receivable of the month of September = $ 34,020

The cash collections expected in October from accounts receivable = Cash collected from accounts receivable of the month of October + Cash collected from accounts receivable of the month of September

= $ 171,920 + $ 34,020

= $ 205,940

The cash collections expected in October from accounts receivable = $ 205,940

The solution is option b. $ 205,940

ekkarill92 answered 1 year ago
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