Answer:
a. Sales for November = $192,666.67
b. Sales for December = $390,500
c. Cash collections for:
January = $216,200
February = $213,075
March = $191,750
Explanation:
First consider the following information:
Credit sales are collected as follows:
65% in the month of the sale
20% in the month after the sale
15% in the second month after the sale
a. To calculate sales for November, note that the account receivable balance at the end of the previous quarter is from the sales of the previous two months (November and December), of these sales, we are told that $78,100 is from December sales, therefore to calculate the amount from November sales = 107,000 - 78,100 = $28,900.
Next, we are told that the 15% of sales are collected is the second month following sales, and January is the second month following the November sales from the previous quarter, therefore, the $28,900 from the previous November sales is 15% of the original sales, and the original sale is calculated thus:
Let sale for November be N
15% of N = 28,900
15/100 × N = 28,900
0.15N = 28,900
∴ N = 28,900 ÷ 0.15 = $192,666.67 ( to 2 decimal places)
b. The $78,100 which was uncollected December sales is 20% of the original sales, since December is the one month away from the beginning of the new quarter, and 20% of sales is collected in the month following sales. Therefore December sales is calculated as follows:
Let December sales be D
20% of D = 78,100
0.20 × D = 78,100
∴ D = 78,100 ÷ 0.20 = $390,500
c.
i. Cash collections in January
from previous quarter = $107,000
from January's sales = 65% of January sales
= 0.65 × 168,000 = 109,200
Total cash collection in January = $216,200
ii. cash collections in February:
From December sales = 15% of December sales ( Fabruary is 2 months following December sales)
= 0.15 × 390,500 = $58,575
from January's sales = 20% of January sales (February is the month following January's sales)
= 0.20 × 168,000 = $33,600
from February's sale = 65% of February's sales
= 0.65 × 186,000 = $120,900
Total cash collections in February = 58,575 + 33,600 + 120,900 = $213,075
iii. Cash collections in March
From January's sale = 15% of January's sales
= 0.15 × 168,000 = $25,200
from February's sale = 20% of February's sale
= 0.20 × 186,000 = $37,200
From March's sale = 65% of March's sale
= 0.65 × 199,000 = $129,350
∴ Total cash collections for March = 25,200 + 37,200 + 129,350 = $191,750
