CMA Study Group

  • 1.  part 1 Question

    Posted 11-06-2012 08:13 AM
      
    hi every body


    Brown Company estimates that monthly sales will be as follows.
                       January $100,000
                       February 150,000
                       March      180,000

    Historical trends indicate that 40% of sales are collected during the month of sale, 50%
    are collected in the month following the sale, and 10% are collected two months after the
    sale. Brown's accounts receivable balance as of December 31 totals $80,000 ($72,000
    from December's sales and $8,000 from November's sales). The amount of cash Brown
    can expect to collect during the month of January is

    a. $76,800.
    b. $84,000.
    c. $108,000.
    d. $133,000.


    Correct answer c. The expected cash collections for Brown total $108,000.

    Cash collections = $8,000 + [($72,000 ÷ .6) x .5] + ($100,000 x .4)
    = $8,000 + $60,000 + $40,000
    = $108,000


    but i think the correct answer

           January $100,000  *0.40 =40000

    accounts receivable December  72000
                                    November  8000
                                                      
                                                      120000


    please explain this answer for me

    thankes
    -------------------------------------------
    Ayda Fahim Samaan
    Accountant
    Mina Tex
    Sidi Beasher
    Egypt
    -------------------------------------------


  • 2.  RE:part 1 Question

    Posted 11-07-2012 11:45 AM
    USD108,000 is the correct answer because:

    Account receivable from Dec.'s sales = $72,000, which means the actual total sales of December is $120,000. Remember that $72,000 is just for 60% sales, that's why you have to gross up the amount to 100% sales before multiplying for 50%.


    -------------------------------------------
    Thanh Nga Ngo
    Unemployed
    Hickory NC
    United States
    -------------------------------------------






    Original Message


  • 3.  RE:part 1 Question

    Posted 11-07-2012 11:55 AM
    Amounts collected in January include:

    40% of January sales ($100,000*.40)      $40,000
    50% of December sales ($120,000*.50)   $60,000
    10% of November sales                              $8,000

    Total January collections:  $108,000

    The amount in A/R at December 31 is made up of $72,000 from December sales and $8,000 from November sales.  Since collections are made up to two months after the sale, the last of the November collections will happen in January.  That's the $8,000.  At the end of December $72,000 of December sales were in A/R.  40% of December sales were collected in December, leaving 60% of sales ($72,000) in A/R.  Thus December sales were $72,000/.60=$120,000.  50% of December sales will be collected in January:  $120,000*.50=$60,000.

    In your answer, you assumed that all of the A/R at the end of December will be collected in January.  That's not the case, since 50% of December sales are collected in January and the other 10% are collected in February.  They give you a hint about that when they tell you that the December A/R is made up partly of November sales and partly December sales.

    -------------------------------------------
    Alice Currier
    Accountant
    Battle Ground WA
    United States
    -------------------------------------------






    Original Message