Question

Pardee Company makes 30% of its sales for cash and 70% on account. 60% of the account sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for the current year:Month total sales1=$60,0002=$70,0003=$50,0004=$30,000Total cash receipts in Month 4 will be:a. $38,000.b. $47,900.c. $27,230.d. $36,230.

Answer 1

Answer:

Option (d) is correct.

Explanation:

Cash receipts in month 4 :

Month 4 sales = (30% × 30,000) + (70% × 30000 × 60%)

                        = $21,600

Month 3 sales = 50,000 × 70% × 25%

                        = $8,750

Month 2 sales = 70,000 × 70% × 12%

                        = $5,880

Thus, total cash receipts:

= Month 4 sales + Month 3 sales + Month 2 sales

= $21,600 + $8,750 + $5,880

= $36,230