Learning Outcome: Discuss basic budgeting onilep comprise the master budget 2Cor

Question

Learning Outcome: Discuss basic budgeting onilep comprise the master budget 2Corbin Company has prepared the following sales budget: Month September October November December Cash Sales $99,000 225,000 310,000 94,000 $250,000 180,000 210,000 170,000 Collections of credit sales are 50% in the month of sale, 40% in the month following sale, and 10% two months following sale. No uncollectible accounts are expected. What is the expected balance in Accounts at November A) $77,500 B) $105,000 C) $123,000 D) $210,000 Answer: C Diff: 2 LO: 7-7 AACSB: Analytic skills Learning Outcome: Discuss basic budgeting concepts an comprise the master budget d identify and prepare the budgets that 28 © 2014 Pearson Education, Inc.

Explanation / Answer

Answer

It is mentioned in the question that Collection of Credit sale are 50% in Month of sale, 40% next month and 10% Next to next Month.

I.e. If the sale of $100,000 has happened In January then 50,000(100,000 * 50%) will be received in Month of January, $40,000 (100,000 * 40%) in February and $10,000(100,000 * 10%) in March.

So for the Month of September, Payment will be collected as 50% in September, 40% in October and 10% in November, So in November End there will be NO accounts receivable for September Month.

So for the Month of October, Payment will be collected as 50% in October, 40% in November and 10% will be arrears at the end of November, So in November End there will be $18,000(180,000 * 10%) accounts receivable for October Month.

So for the Month of November, Payment will be collected as 50% in November and remaining 40% in December and 10% in January, So 50% will be arrears at the end of November, So in November End there will be $105,000(210,000 * 50%) accounts receivable for November Month.

Accounts Receivable at November End = Arrears of October + Arrears of November

= $18,000 + $105,000

Accounts Receivable at November End = $123,000

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