26 August, 14:10

# 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 \$250,000, \$311,000, and \$407,000, 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.\$174,160 b.\$139,160 c.\$209,160 d.\$250,992

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1. 26 August, 15:43
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c.\$209,160

Explanation:

Given that the cash received from each sale will be collected over 2 months. If 30% of mechanize is to be sold for cash, then 70% will be sold on account. Further more, 80% of the credit/sale on account will be collected in the month of sale and 20% in the following month.

Hence for October, cash collection will include 20% of credit sale from September and 80% of the credit sale in the month.

Given that sales in September is \$250,000

Amount expected to sold on account

= \$250,000 - (30% * \$250,000)

= \$175,000

Amount expected to be collected from this sale in October

= 20% * \$175,000

= \$35,000

Amount of credit sale in October

= \$311,000 - (30% * \$311,000)

= \$217,700

Amount of this credit sale to be collected in October

= 80% * \$217,700

= \$174,160

Total collected from accounts receivable in October

= \$174,160 + \$35,000

= \$209,160