Wichita Industries\' sales are 20% for cash and 80% on credit. Credit sales are

Question

Wichita Industries' sales are 20% for cash and 80% on credit. Credit sales are collected as follows: 40% in the month of sale, 50% in the next month, and 10% in the following month. On December 31, the accounts receivable balance includes $13,000 from November sales and $42,000 from December sales. Assume that total sales for January and February are budgeted to be $51,000 and $102,000, respectively. What are the expected cash receipts for February from current and past sales?

Multiple Choice

$49,100.

$40,400.

$80,440.

$27,400.

$40,800.

Explanation / Answer

For December Sales Balance Receivable = $ 42,000

This amount is 60 % of Credit Sales

Hence Credit Sales = 42,000 /60%

= $ 70,000

Hence, Amount Received in January = $ 70,000* 50%

= $ 35,000

Hence, Amount Received in February= $ 70,000 * 10%

= $ 7000

cash Collections :

Hence the correct answer is $ 80,440

  Budgeted Cash Receipts February Cash Sales 20,400 Credit Sales For February Sales 40% 32,640 For january Sales 50% 20,400 For December Sales 10% 7,000 Expected cash receipts   80,440

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