The Model Company Is to Begin Operations in April

question 14

Multiple Choice

The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible.
What is the amount of cash to be collected in the month of July?

• A) $34,022.
• B) $38,022.
• C) $42,000.
• D) $37,580.

---

Definitions:

Maturity

The date on which the principal amount of a loan, bond, or other financial instrument becomes due and payable.

Arbitrage

The practice of buying and selling equivalent assets in different markets to take advantage of a price difference.

Law of One Price

An economic theory that states that in efficient markets, identical goods must have only one price when prices are expressed in a common currency, absent any transaction costs and tariffs.

Treasury Bond

A long-term, interest-bearing security issued by the U.S. government.