Cavanaugh Company Has the Following Expected Pattern of Collections on Credit

question 147

Multiple Choice

Cavanaugh Company has the following expected pattern of collections on credit sales: 70 percent collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month after the month of sale. The remaining 1 percent is never collected. At the end of May, Cavanaugh Company has the following accounts receivable balances:
Cavanaugh's expected sales for June are $150,000. How much cash will Cavanaugh Company expect to collect in June?

• A) $127,400
• B) $129,000
• C) $148,600
• D) $152,520

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Definitions:

Multinomial Distribution

A generalization of the binomial distribution, which deals with outcomes of a experiment that can fall into more than two categories.

Categories

Distinct groups or classes into which data can be classified.

Expected Frequency

The number of times an event is predicted to occur within a specified number of trials or over a given period of time, based on probability.

Observed Frequency

The count of occurrences or instances of a particular event or characteristic in a data set.