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Woodpecker Co. has $296,000 in accounts receivable on January 1. Budgeted sales for January are $860,000. Woodpecker Co. expects to sell 20% of its merchandise for cash. Of the remaining 80% of sales on account, 75% are expected to be collected in the month of sale and the remainder the following month. The January cash collections from sales are a. $468,000 b. $812,000 c. $984,000 d. $688,000

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Answer:

The correct answer would be option C, $984000

Explanation:

Account Receivables on January 1 = $296000

Expected Sales for January= $860000

Cash sale Expectation = 20% of Sales

= 20% of 860000

= 0.2*860000

Expected Cash Sale = 172000

Remaining 80% of Sales would be on account as:

= 80% of 860000

= 0.8 * 860000

= 688000

Out of this 80% sales, 75% are expected to be collected in the month of sale, that is:

= 75% of 688000

= 0.75*688000

= 516000

So the January cash collections would be:

Account Receivables for Jan + Expected Sales on Cash + Cash received from account on the same month of sale:

Total Cash Received in the month of Jan:  

= 296000+172000+516000

= $984000

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