Question

Alpha Company makes all its sales on account. Accounts receivable payment experience is as follows: Percent paid in the month of sale 35% Percent paid in the month after the sale 54% Percent paid in the second month after the sale 6% Alpha provided information on sales as follows: May $150,000 June $125,000 July $136,000 August (expected) $142,000 How much of May's sales are expected to be uncollectible?

Answer 1

Answer:

May's sales that are expected to be noncollectable are $7500.

Explanation:

The total collections from a months's credit sales is expected to be as follows,

35% in the month of sale

54% in the following month

6% in the second month after sale

The remaining is expected to be noncollectable.

The credit sales for a month are equal to 100%.

The percentage of noncollectable sales is = 100 - (35 + 54 + 6)  = 5%

Thus, 5% of each month's sale is expected to be noncollectable.

May's sales that are expected to be noncollectable are,

Noncollectable Sales-May = 150000 * 0.05  =  $7500