Paradise, Inc., a distributor of suntan lotion, has the following historical collection pattern for its credit sales. 70 percent collected in the month of sale. 15 percent collected in the first month after sale. 10 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: April $49,000 May60,000 June 70,000 July 80,000 August90,000 September100,000 October85,000 Required: A. Compute the estimated total cash collections during August from credit sales. B. Compute the estimated total cash collections during the August - October quarter from sales made on account during this quarter.
What will be an ideal response?
| A. | Amount Collected in August |
| $60,000 × 4% | $ 2,400 |
| 70,000 × 10% | 7,000 |
| 80,000 × 15% | 12,000 |
| 90,000 × 70% | 63,000 |
| ? | $84,400 |
Notice that the amount of sales on account in April, $49,000 was not needed to solve the exercise.
| B. | Cash collections in the August to October quarter from credit sales in this quarter. |
| Month of Sale | Credit Sales | Amount Collected August | Amount Collected September | Amount Collected October |
| August | $ 90,000 | $63,000 (70% × $90,000) | $13,500 (15% × $90,000) | $9,000 (10% × $90,000) |
| September | 100,000 | ? | 70,000 (70% × $100,000) | 15,000 (15% × $100,000) |
| October | 85,000 | - | - | 59,500 (70% × $85,000) |
| Total | ? | $63,000 | $83,500 | $83,500 |
| quarter from credit sales in this quarter | $230,000 |
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