Boone Co.'s sales, based on past experience, are 20% cash and 80% credit. Credit sales are typically collected as follows: 40% in the month of sale, 50% in the month after the sale, and 10% in the second month following month of sale. On December 31, the accounts receivable balance is $54,000, of which $12,000 is from November sales. Total sales for January and February are budgeted to be $100,000 and $120,000, respectively.What are Boone Co.'s budgeted cash receipts for February?

What will be an ideal response?

$109,400

1. Cash sales in February = $120,000 × 0.20 = $24,000

2. Collection in February of a portion of February's credit sales = ($120,000 × 0.80) × 0.40 = $38,400

3. Collection in February of a portion of January's credit sales = ($100,000 × 0.80) × 0.50 = $40,000

4. Determination of Total December credit sales: (a) December 31 Gross Accounts Receivable = $54,000. (b) Portion of December's Gross Accounts

Receivable attributable to November's credit sales = $12,000 (given). (c) Therefore, December 31st gross accounts receivable attributable to December sales = $54,000 ? $12,000 = $42,000 (which is 60% of total December sales). (d) Therefore, total credit sales in December = ($42,000/0.6) = $70,000.

5. Portion of December's credit sales budgeted to be received in February = ($70,000 × 10%) = $7,000

6. Budgeted cash receipts for February = Cash sales in February + Collection in February of a portion of February's credit sales + Collection in February of a portion of January's credit sales + Collection in February of a portion of December's credit sales = $24,000 + $38,400 + $40,000 + $7,000 = $109,400