Question

The LaGrange Corporation had the following budgeted sales for the first half of the current year:

	Cash Sales		Credit Sales
January	$	40,000	$	140,000
February	$	45,000	$	160,000
March	$	39,000	$	120,000
April	$	34,000	$	119,000
May	$	44,000	$	190,000
June	$	70,000	$	130,000

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

40% in month following sale

5% in second month following sale

The accounts receivable balance on January 1 of the current year was $82,000, of which $63,000 represents uncollected December sales and $19,000 represents uncollected November sales.

The total cash collected during January by LaGrange Corporation would be:

$190,000

$192,000

$140,000

$216,000

The LaGrange Corporation had the following budgeted sales for the first half of the current year:

	Cash Sales		Credit Sales
January	$	40,000	$	140,000
February	$	45,000	$	160,000
March	$	39,000	$	120,000
April	$	34,000	$	119,000
May	$	44,000	$	190,000
June	$	70,000	$	130,000

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

40% in month following sale

5% in second month following sale

The accounts receivable balance on January 1 of the current year was $82,000, of which $63,000 represents uncollected December sales and $19,000 represents uncollected November sales.

The total cash collected during January by LaGrange Corporation would be:

$190,000

$192,000

$140,000

$216,000

Answer 1

Answer:

Correct answer is:

$192,000

Explanation:

Collections on sales:

55% in month of sale

40% in month following sale

5% in second month following sale

The accounts receivable balance on January 1 of the current year was $82,000, of which $63,000 represents uncollected December sales and $19,000 represents uncollected November sales.

Hence Account receivable balance of November (in Jan 1 balance) should be collected fully in January

Account receivable balance of December (in Jan 1 balance) should be 45% of December credit sales and only 40% of December credit sales will be collected in January. The amount collected in January will be = $63,000 * 40%/45% = $56,000

January :

Cash sales = $40,000

Credit sales = $140,000

Hence,

Total cash collected during January = Cash sales in January + 55% of credit sales in January + Amount collected from November sales + Amount collected from December sales

= $40,000 + 55%* $140,000 + $19,000 + $56,000 =$192,000

As such option 2 is correct.

Option 3 is incorrect since $140,000 is the credit sales in January. This amount is not cash collected in January.

As calculated above amount of cash collected in January is $192,000 hence options 1 and 4 are incorrect.