Question

It is January 1 of Year 2. Sales for Harry Company for January, February, and March are forecasted to be as follows: January, $200,000; February $400,000; March, $500,000. ALL sales are credit sales. Of these credit sales, 10% are collected during the month of sale, 30% in the following month, and 60% in the second following month. TOTAL sales for November and December of Year 1 were $200,000 and $400,000, respectively.
What is the forecasted amount of total CASH COLLECTIONS FROM SALES in March?

A. $280,000
B. $270,000
C. $310,000
D. $290,000
E. $300,000

Answer 1

Answer:

D. $ 290,000

Explanation:

Computations of cash collections for March

Collections

For January sales $ 200,000 * 60 % second month after sales)     $ 120,000

For February sales $ 400,000 * 30 % (first month after sales)         $  120,000          

For March sales      $ 500,000 * 10 % ( month of sales)                    $    50,000

Collections for March                                                                          $ 290,000