Question

Mitchell Company had the following budgeted sales for the first half of next year:

  

	Cash Sales	Credit Sales
January	$70,000	$170,000
February	$75,000	$190,000
March	$32,000	$150,000
April	$37,000	$132,000
May	$47,000	$220,000
June	$100,000	$220,000

  

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

  

  Collections on credit sales:

  50% in month of sales

  40% in month of following sales

  10.0% in second month following sales

  

Assume that the accounts receivable balance on January 1 was $65,000. Of this amount, $47,000 represented uncollected December sales and $18,000 represented uncollected November sales. Given these data, the total cash collected during January would be:

$210,600

$291,000

$94,000

$238,000

Answer 1

MONTH	CASH COLLECTED	CALCULATION
NOVEMBER – CREDIT REALISED	18000	Balance 10% collected
DECEMBER – CREDIT REALISED	37600	It is said that 47000 represents presented uncollected December sales. It represents only 50% of total credit sale made during December. Therefor total credit sale for the month December = 47000/50% = 94000. December credit sales 40% collected on January, hence 94000*40% = 37600
JANUARY – CREDIT REALISED	85000	170000*50%
JANUARY – CASH	70000
TOTAL	210600