Question

18) Lafayette Company's experience shows that 20% of its sales are for cash and 80% are on credit. An analysis of credit sales shows that 50% are collected in the month following the sale, 45% are collected in the second month, and 5% prove to be uncollectible. Calculate the following items (1) through (10). Sales .. August $500,000 September October November $525,000 $535,000 $550,000 October November (6) Receipts from cash sales Collections from August credit sales (2) Collections from September credit sales (3) Collections from October credit sales (4) Total cash collections during the month (5) (8) (10).

Answer 1

	October	November
Receipt from cash sales	535,000 x 20% = 107,000	550,000 x 20% = 110,000
Collection from August credit sales	400,000 x 45% = 180,000	0
Collection from September credit sales	420,000 x 50% = 210,000	420,000 x 45% = 189,000
Collection from October credit sales	0	428,000 x 50% = 214,000
Total cash collections during the month	497,000	513,000

Credit sales for August = Total sales x 80%

= 500,000 x 80%

= $400,000

Credit sales for September = Total sales x 80%

= 525,000 x 80%

= $420,000

Credit sales for October = Total sales x 80%

= 535,000 x 80%

= $428,000

Credit sales for November = Total sales x 80%

= 550,000 x 80%

= $440,000

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