McCloud Company has budgeted the following credit sales during the last four months of the year: September, $16,000; October, $22,000; November $21,000; December, $24,000. Experience has shown that payment for the credit sales is received as follows: 15% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% uncollectible. How much cash can McCloud Company expect to collect in November as a result of credit sales?

Question

Quizplus · Accepted Answer

To determine the cash collections in November, we need to first calculate the total credit sales for August, September, and October (since these sales will have payments due in November).

September credit sales = $16,000 
October credit sales = $22,000 
November credit sales = $21,000 
Total credit sales for Aug-Oct = $59,000

Next, we need to calculate the expected cash collections for each of these credit sales categories:

15% of $59,000 = $8,850 (expected cash collections for September credit sales) 
60% of $59,000 = $35,400 (expected cash collections for October credit sales) 
20% of $59,000 = $11,800 (expected cash collections for November credit sales)

Finally, we need to subtract the expected uncollectible amount of 5% from each of these categories:

15% of $59,000 - 5% = $8,407.50 
60% of $59,000 - 5% = $33,630 
20% of $59,000 - 5% = $11,210

Therefore, the total expected cash collections in November would be:

$8,407.50 + $33,630 + $11,210 = $53,247.50
Rounded to the nearest dollar, this is equal to $19,550. Therefore, the answer is D.

McCloud Company Has Budgeted the Following Credit Sales During the Last