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On October 1 of the current year,Molloy Corporation prepared a cash budget for October,November,and December.All of Molloy's sales are made on account.The following information was used in preparing estimated cash collections:
Approximately 60% of all sales are collected in the month of the sale,30% is collected in the following month,and 10% is collected in the month thereafter.
-Budgeted collections from customers in October total:
A)$39,000.
B)$27,000.
C)$31,000.
D)$110,000.

Question

[The following information applies to the questions displayed below.]
On October 1 of the current year,Molloy Corporation prepared a cash budget for October,November,and December.All of Molloy's sales are made on account.The following information was used in preparing estimated cash collections:
  Approximately 60% of all sales are collected in the month of the sale,30% is collected in the following month,and 10% is collected in the month thereafter.
-Budgeted collections from customers in October total:
A)$39,000. 
B)$27,000. 
C)$31,000. 
D)$110,000.

Quizplus · Accepted Answer

The total sales for the three months are $130,000 (given in the previous parts of the question). Based on the information provided, 60% of the sales will be collected in the same month, which gives us $78,000 ($130,000 x 60%). 30% of the sales will be collected in the following month, which gives us $39,000 ($130,000 x 30%). 10% of the sales will be collected in the second month following the sale, which gives us $13,000 ($130,000 x 10%). Therefore, the total collections for October will be $78,000 (same-month collections) + $39,000 (following-month collections) + $13,000 (second-month collections) = $130,000 x 0.6 + $130,000 x 0.3 + $130,000 x 0.1 = $31,000.

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