Question

It is November 1 of Year 1. Sales for Scott Company for November and December of Year 1 and January of Year 2 are forecasted to be as follows: November, 400,000; December 600,000; January, 200,000 100% of sales are credit sales. Of these credit sales, 5% are collected during the month of sale, 25% in the following month, and 65% in the second following month; 5% are never collected. Total sales for September and October of Year 1 were 100,000 and 150,000, respectively. What is the forecasted amount of total cash collections in January of Year 2

Answer 1

$420,000

Step-by-step explanation:

The computation of the forecasted amount of total cash collections for the year 2 is shown below:

= 5% × Jan sales + 25% × December month + 65% × November sales

= 5% × 200,000 + 25% × 600,000 + 65% × 400,000

= $10,000 + $150,000 + $260,000

= $420,000