Question

Rocha & Noel Company, an importer and retailer of Polish pottery and kitchenware, prepares a monthly master budget. Data for the July master budget are given below: The June 30 balance sheet is as follows: Cash $35,000 Accounts payable $55,000 Accounts receivable 120,000 Capital stock 320,000 Inventory 56,000 Retained earnings 96,000 Building and equipment (net) 260,000 Budgeted sales for July, August, and September are given below. July 370,000 August 420,000 September 330,000 Sales are 30% for cash and 70% on credit. All credit sales are collected in the month following the sale. There are no bad debts. The gross margin percentage is 45% of sales. The desired ending inventory is equal to 30% of the following month's sales. One fourth of the purchases are paid for in the month of purchase and the others are purchased on account and paid in full the following month. The monthly cash operating expenses are $45,000, and the monthly depreciation expenses are $7,500. What is the balance of the accounts receivable at the end of July? a. $398,000 b. $259,000 c. $360,000 d. $110,000

Answer 1

Correct answer is $259,000

Explanation :-

Opening balance of Account receivable = $120,000

As per information given, all credit sales are collected in the month following sales, which means June's closing Account receivable are received in July.

Credit sales in July = 370,000 x 70% = 259,000

Account receivable at July's end

= Opening balance - collection + credit sales

= 120,000 - 120,000 + 259,000

= $259,000