CFA Practice Question

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CFA Practice Question

Jumbo, Inc. had sales of $8,000 in November, $14,000 in December, and projects sales of $10,000 in January, $12,000 in February, and $8,000 in March. The firm's COGS in any given month is equal to 70% of the next month's sales. The firm collects its receivables in 60 days and pays its payables in 30 days. The firm begins January 1 with $10,000 in cash. All sales and purchases are on credit. There are no other costs or revenues. What is Jumbo's accounts receivable at the end of January? Assume there are 30 days in every month.

A. $14,000
B. $22,000
C. $24,000
Correct Answer: C

It takes customers 60 days, or 2 months, to pay for their purchases. Have they paid for what they bought in January? Have they paid for their December purchases? How about the November purchases?

User Contributed Comments 11

User Comment
roydain Receivable will be Dec $14000 and Jan 10000. Because Jumbo collects Dec sales in Jan and has to collect Jan sales too. Totalling $24000.
chamad $8000 sales in november is collected in end december and then will not appear in receivables by end january.
14000 sales in december will stay 60 days(end january)
10000 sales in january will stay until the end of february.
Total Amount remaining in end january 14000+10000 as 8000 has been paid.
There is a lot of unuseful data in this question.
kutta2102 I assumed that the sales figure for November would be a month end figure - 2 months from then would be end of January. Therefore, one will need to add $8K to $24k. I suppose AN is assuming Nov sales to be recorded on first day of the month. Am I missing something?
Richie188 Nov sales are received by the end of Jan, so receivable consists only Dec and Jan sales.
bundy All sales on Credit collected in 60 days
Nov sales collected by end of Jan so they don't count. that leaves sales for Dec $14,000 and sales for Jan $10,000...for a total in Receivables at End of Jan of $24,000
michlam14 so i got the answer but before that i stupidly tried to calculate using turnover formula, and got a completely different answer. In what circumstance do we apply the formula?
2014 If receivable are collected are collected in 60 days then by 29 january November sales (14,000) completes 60 days = 31 december days + 29 January days = 60 days..... so is this question set properly or is answer choices are not correct. Because receivable should be 10,000 by end of 31 december accounting period .... add comments pls
johntan1979 Question and answer is correct. No formula required. Refer to Richie188 and bundy's explanation.
jonan203 jesus, talk about burying you in useless information
gill15 I'm an idiot....Johntan is right
MathLoser "Alright, guys. How can we make these questions more complicated?"
"Let's add some useless information"
"And make it looks like a paragraph!"
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