Question

Exercise 9-24 Cash Collections (LO 9-3, 9-5) Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its credit sales. 75 percent collected in the month of sale. 15 percent collected in the first month after sale. 5 percent collected in the second month after sale. 4 percent collected in the third month after sale. 1 percent uncollectible. The sales on account have been budgeted for the last seven months as follows: June $ 127,500 July 155,000 August 180,000 September 210,000 October 235,000 November 260,000 December 222,500 Required: 1. Compute the estimated total cash collections during October from credit sales. 2. Compute the estimated total cash collections during the fourth quarter from sales made on account during the fourth quarter

Answer 1

1. Total cash collection during October = 75% of October sales + 15% of September sales + 5% of August sales + 4% of July sales

= ($235,000 * 75%) + ($210,000 * 15%) + ($180,000 * 5%) + ($155,000 * 4%)

= $176,250 + $31,500 + $9,000 + $6,200

= $222,950

2. The estimated total cash collections during the fourth quarter from sales made on account during the fourth quarter =

(October sales * 95%) + (November sales * 90%) + (December sales * 75%)

= ($235,000 * 95%) + ($260,000 * 90%) + ($222,500 * 75%)

= $223,250 + $234,000 + $166,875

= $624,125