Question

The LaGrange Corporation had the following budgeted sales for the first half of the current year:

		Cash Sales		Credit Sales
January	$	60,000	$	160,000
February	$	65,000	$	180,000
March	$	33,000	$	140,000
April	$	28,000	$	113,000
May	$	38,000	$	210,000
June	$	90,000	$	70,000

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 sales:

45% in month of sale

30% in month following sale

25% in second month following sale

The accounts receivable balance on January 1 of the current year was $67,000, of which $55,000 represents uncollected December sales and $12,000 represents uncollected November sales.

The total cash collected during January by LaGrange Corporation would be:

• $257,000

• $205,000

• $100,000

• $174,000

Answer 1

Calculation:

Based on the given information, Account receivable balance of November (in Jan 1 balance) should be collected fully in January

Account receivable balance of December (in Jan 1 balance) should be 55% of December credit sales and only 30% of December credit sales will be collected in January. The amount collected in January will be = $55,000 * 30%/55% = $30,000

January :

Cash sales = $60,000

Credit sales = $160,000

Hence,

Total cash collected during January = Cash sales in January + 45% of credit sales in January + Amount collected from November sales + Amount collected from December sales

= $60,000 + 45%* $160,000 + $12,000 + $30,000

=$174,000

Therefore, option 174,000 is correct.