ExpertMedium1 markMultiple Choice
CPA · Question 07 · Area I: Business Analysis
Silverstream Corp. is preparing its cash budget for April. The following information is available:<br/>- February Sales: $200,000<br/>- March Sales: $250,000<br/>- April Sales (Projected): $300,000<br/><br/>Collection pattern: 40% in the month of sale, 50% in the following month, and 8% in the second month following sale. 2% are uncollectible.<br/><br/>What are the total expected cash collections for April?
Silverstream Corp. is preparing its cash budget for April. The following information is available:<br/>- February Sales: $200,000<br/>- March Sales: $250,000<br/>- April Sales (Projected): $300,000<br/><br/>Collection pattern: 40% in the month of sale, 50% in the following month, and 8% in the second month following sale. 2% are uncollectible.<br/><br/>What are the total expected cash collections for April?
Answer options:
A.
$245,000
B.
$255,000
C.
$261,000
D.
$294,000
How to approach this question
Create a schedule breaking down collections by source month.
Full Answer
C.$261,000✓ Correct
C
Collections in April:<br/>1. From April Sales (Current): $300,000 x 40% = $120,000<br/>2. From March Sales (Prior Month): $250,000 x 50% = $125,000<br/>3. From February Sales (2 Months Prior): $200,000 x 8% = $16,000<br/>Total Collections = $120,000 + $125,000 + $16,000 = $261,000.
Common mistakes
Applying percentages to the wrong months; forgetting the uncollectible portion (though not needed for calculation if percentages sum to 98%).
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