Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for...

Question:

Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its credit sales.

- 70 percent collected in the month of sale.

- 15 percent collected in the first month after the sale.

- 10 percent collected in the second month after the sale.

- 4 percent collected in the third month after the sale.

- 1 percent uncollectible.

The sales on the account have been budgeted for the last seven months as follows:

June $49,000
July 60,000
August 70,000
September 80,000
October 90,000
November 100,000
December 85,000

Required:

1. Compute the estimated total cash collections during October from credit sales.

2. Compute the estimated total cash collections during the fourth quarter from sales made on account during the fourth quarter.

3. Construct a spreadsheet to solve both of the preceding requirements Show how the solution will change if the following information changes: sales in June and July were $50,000 and $65,000, respectively.

Credit Sales:

Sales is the first line item presented in an Income Statement. It consist of revenues earned by the company during a certain period. Sales can be made into two types: through Cash (Cash Sales) or on account (Credit Sales). Credit Sales are recorded by the entry debiting Accounts Receivables and crediting Sales.

Answer and Explanation:

Collections
70/15/10/4 June July August September October November December Total
June 49,000 34,300.0 7,350.00 4,900.0   1,960.00 48,510.0
July 60,000 42,000.0 9,000.00   6,000.0 2,400.00 59,400.0
August 70,000 49,000.0 10,500.00    7,000.0 2,800.00 69,300.0
September 80,000   56,000.0 12,000.00 8,000.0    3,200.00 79,200.0
October 90,000 63,000.0 13,500.00 9,000.0 85,500.0
November 100,000 70,000.0 15,000.00 85,000.0
December 85,000 59,500.0 59,500.0
34,300.0 49,350.0 62,900.0   74,460.0 84,400.0 94,300.0 86,700.0 486,410.0
1   84,400 total cash collections during October from   credit sales.
2 Collections
Sales October November December Total
October 63,000 13,500 9,000   85,500
November 70,000 15,000   85,000
December 59,500   59,500
63,000 83,500 83,500   230,000
3
Collections
70/15/10/4 June July August September October November December Total
June 50,000 35,000.0 7,500.00 5,000.0   2,000.00 49,500.0
July 65,000 45,500.0 9,750.00   6,500.0 2,600.00 64,350.0
August 70,000 49,000.0 10,500.00    7,000.0 2,800.00 69,300.0
September 80,000   56,000.0 12,000.00 8,000.0    3,200.00 79,200.0
October 90,000 63,000.0 13,500.00 9,000.0 85,500.0
November 100,000 70,000.0 15,000.00 85,000.0
December 85,000 59,500.0 59,500.0
35,000.0 53,000.0 63,750.0   75,000.0 84,600.0 94,300.0 86,700.0 492,350.0
Collections
Sales October November December Total
October   63,000 13,500 9,000   85,500
November 70,000 15,000   85,000
December 59,500   59,500
63,000 83,500 83,500   230,000


Learn more about this topic:

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Credit Policy & Receivables

from Finance 101: Principles of Finance

Chapter 19 / Lesson 1
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