A. This is the entire credit sales portion of December sales. While some of this will be in accounts receivable at the end of December, 40% of it will have been collected before the end of the month. Furthermore, a portion of the receivables from November's sales will also still be outstanding. See correct answer for complete calculation.
B. The question asks for the net accounts receivable balance as of December 31. That means that for the purpose of answering this question, we disregard the receivables that will be uncollectible. The net accounts receivable balance as of December 31 will consist of amounts that were sold before the end of the year that will be collected in January and February of the following year.
30% of accounts receivable balances are collected in the month following the sale, and 25% of the balances are collected in the second month following the sale. (The 40% that are collected in the month of sale are not relevant because they will not be outstanding any longer at the end of the month.)
The amounts that were sold before the end of the year that will be collected in January and February of the following year are:
* 25% of November's credit sales that will be collected in January
* 30% of December's credit sales that will be collected in January
* 25% of December's credit sales that will be collected in February
Since 20% of the company's sales are for cash, 80% are on credit. Total sales for November will be $480,000, and 80%, or $384,000, will be on credit. Total sales for December will be $450,000, and 80%, or $360,000, will be on credit. Therefore, the ending net accounts receivable balance as of December 31 will be:
25% of November credit sales of $384,000 $ 96,000
30% of December credit sales of $360,000 108,000
25% of December credit sales of $360,000 90,000
Net Accounts Receivable - Dec. 31 $294,000
C. This is the December 31 net accounts receivable balance reduced by 5%. However, the December 31 net accounts receivable balance is already adjusted for the 5% of credit sales that will be uncollectible. That is why it is called "net." See correct answer for details.
D. This answer results from using the full sales amounts for the relevant months to calculate the amount in net accounts receivable. However, the amount in net accounts receivable should be based on the portion of sales that are made on credit. See correct answer for complete calculation.
