Question

The LaGrange Corporation had the following budgeted sales for the first half of the current year. January February March April May June Cash Credit Sales Sales $ 20,000 $120,000 $ 25,000 $140,000 $37,000 $100,000 $32,000 $117,000 $ 42,000 $170,000 $50,000 $110,000 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: 55% in month of sale 35% in month following sale 10% in second month following sale The accounts receivable balance on January 1 of the current year was $71,000, of which $54,000 represents uncollected December sales and $17,000 represents uncollected November sales. The total cash collected during January by LaGrange Corporation would be:

Please Solve for multiple choice in image. Explain.

Answer 1

Answer:

Correct answer is:

$145,000

Explanation:

Given:

Collection of credit sales:

55% in the month of sale

35% in the month following sale

10% in second month following sale

So:

Total cash collected in January of current year = Cash sales of January + 55% * Credit Sales in January of current year + 35% * Credit Sales of December last year + 10% * Credit Sales of November last year

Further:

Account receivable balance of December end was $71,000 of which $54,000 uncollected Dec sales and $17,000 represent uncollected Nov sales.

Hence:

$17,000 must be 10% of November of credit sales which would be collected in January.

$54,000 must be (100%- 55%=) 45% of December credit sales out which 35% will be collected in January and balance 10% will be collected in February.

Hence:

Collection in January of current year will be = 20000 + 55% * 120000 + 54000 / 45% * 35% + 17000

= $145,000

Option D is correct and other options A, B and C are incorrect.