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This is 95% of May sales of $750,000 (in recognition of the 5% that will be uncollectible) plus the $25,000 to be received from the equipment sale. However, the 95% of May sales for which cash will be collected will not all be collected during May. Furthermore, some of the collections during May will be from April credit sales.
20% of sales are for cash. Therefore, 80% of sales are on credit. The sale of the old equipment is not included in those percentages, because those percentages relate to sales of products. The equipment sale is an asset sale, and it is for cash. May cash receipts will consist of: 25% of April credit sales: $700,000 × .80 × .25 $140,000 70% of May credit sales: $750,000 × .80 × .70 420,000 May cash sales: $750,000 × .20 150,000 Cash sale of equipment during May 25,000 Total cash receipts $735,000
This is 25% of April's credit sales plus 70% of May's credit sales. However, Prudent also has cash sales of product that will take place during May, and it also plans to sell the old equipment for cash during May.
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