Need help with this BEC question

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    Topic
  • #1657606
    Anonymous
    Inactive

    Can someone please help me with this question. I’ve seen it several times but can’t figure it out.

    Ryan Co. projects the following monthly revenues for next year:

    January $100,000 July $250,000
    February 500,000 August 275,000
    March 425,000 September 300,000
    April 450,000 October 350,000
    May 575,000 November 400,000
    June 300,000 December 525,000
    Ryan’s terms are net 30 days. The company typically receives payment on 80% of sales the month following the sale and 17% is collected two months after the sale. Approximately 3% of sales are deemed bad debt. What amount represents the expected cash collection in the second calendar quarter of next year?

    Incorrect A.
    $1,450,000

    B.
    $1,393,750

    C.
    $1,325,000

    D.
    $1,234,250

    17% February Sales = $500,000 x 0.17 = $ 85,000
    97% March Sales = $425,000 x 0.97 = 412,250
    97% April Sales = $450,000 x 0.97 = 436,500
    80% May Sales = $575,000 x 0.80 = 460,000
    ———-
    Total 2nd Quarter Collections $1,393,750

    For this question, how do I know when sales began? Since it states that 80% of payment received comes after the month of sale so the month of sale happened in April. The way I calculate it is this

    April: no collection
    May: 575k x 80% = 460k
    June: 300k x 17% = 51k
    = 511k

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  • #1657615
    HT415
    Participant

    There is a collection in April.

    April:
    80% March
    + 17% February

    The sales numbers should be in line with a certain month, so that is when those sales occurred in those months. However, the collection of those sales occur in the two months following the month the sale occurs.

    So if I had an 80,000 sale in January, using the criteria from the question, I would collect 80% of it in February and 17% of it in March.

    Hope this helps.

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