Magenta Corporation Has the Following Sales Forecasts for the Selected

question 109

Multiple Choice

Magenta Corporation has the following sales forecasts for the selected three-month period for the current year: $$\begin{array} { l r } \text { Month } & \text { Sales } \\\text { July } & \$ 30,000 \\\text { August } & 15,000 \\\text { September } & 12,000\end{array}$$ All sales are on account. Sixty percent of sales are collected in the month of the sale, and the remainder are collected in the following month. $\begin{array} { l } \text {Accounts receivable balance (July 1) }&\$28,000\\ \text { Cash balance (July 1) }&17,000\\\end{array}$
Minimum cash balance is $13,000. Cash can be borrowed in $2,000 increments from the local bank (assume no interest charges) . What is the cash balance at the end of July, assuming that cash is received only from customers and that $53,000 is paid out during July?

• A)$25,000
• B)$18,500
• C)$20,200
• D)$14,000

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Definitions:

Prompt Payment

A financial discipline that involves settling debts quickly, often rewarded by suppliers with discounts.

Purchase Returns

Transactions where buyers return previously purchased merchandise to the seller, often because of defects or errors in the shipment.

Returns

The process of a customer returning previously purchased merchandise back to the seller, or the amount of profit generated from an investment.

Gross Margin Ratio

A financial indicator that calculates the disparity between sales and the cost of goods sold, represented as a portion of sales revenue.