As of January 1 of the current year, Grayson Company had accounts receivable of $40,000. The sales for January, February, and March were $120,000, $140,000, and $150,000, respectively. Of each month's sales, 20% are for cash. Of the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the following month. The total cash collected (both from accounts receivable and for cash sales) in the month of January is a.$107,000 b.$121,600 c.$61,600 d.$64,000

Question

Business

Agustin Caldwell

25 November, 12:47

As of January 1 of the current year, Grayson Company had accounts receivable of $40,000. The sales for January, February, and March were $120,000, $140,000, and $150,000, respectively. Of each month's sales, 20% are for cash. Of the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the following month. The total cash collected (both from accounts receivable and for cash sales) in the month of January is a.$107,000 b.$121,600 c.$61,600 d.$64,000

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Jeremy · Answer 1

The total cash collected in January is $121600 and option b is the correct answer.

Explanation:

The collections in the month of January will contain an amount equal to 20% of January sales as cash sales.

Cash Sales January = 120000 * 0.2 = $24000

The January collections will also include the collections from accounts receivables for the amount of 40% of credit sales of December. The Opening accounts receivables in each month are equal to 40% of previous month's sales. Thus, the opening accounts receivables in January of $40000 will also be collected.

The credit sales for January = 120000 - 24000 = $96000

Out of these, 60% will be collected in January = 96000 * 0.6 = $57600

The total cash collected in January = 24000 + 40000 + 57600 = $121600