A company's history indicates that 20% of its sales are for cash and the rest are on credit.Collections on credit sales are 20% in the month of the sale,50% in the next month,25% the following month,and 5% is uncollectible.Projected sales for December,January,and February are $60,000,$85,000 and $95,000,respectively.The February expected cash receipts from current and prior credit sales is:
A)$57,000
B)$61,200
C)$66,400
D)$80,750
E)$90,250

Question

Quizplus · Accepted Answer

February expected cash receipts from current and prior credit sales is $61,200.Projected sales for December is $60,000, 20% of which is cash sales, or $12,000. The remaining 80% is credit sales, or $48,000.Projected sales for January is $85,000, 20% of which is cash sales, or $17,000. The remaining 80% is credit sales, or $68,000.Projected sales for February is $95,000, 20% of which is cash sales, or $19,000. The remaining 80% is credit sales, or $76,000.Collections on credit sales are 20% in the month of the sale, 50% in the next month, 25% the following month, and 5% is uncollectible.Therefore, February expected cash receipts from December credit sales is $48,000 x 25% = $12,000.February expected cash receipts from January credit sales is $68,000 x 50% = $34,000.February expected cash receipts from February credit sales is $76,000 x 20% = $15,200.Total February expected cash receipts from current and prior credit sales is $12,000 + $34,000 + $15,200 = $61,200.

A Company's History Indicates That 20% of Its Sales Are