To calculate the expected cash collections in months 3 and 4, we need to consider the pattern of credit sales and their collection terms.
Here is the breakdown of credit collections based on the given information:
Month 1:
- Credit sales: $100,000
- Expected collection: 50% collected in the current month = 50% x $100,000 = $50,000
Month 2:
- Credit sales: $120,000
- Expected collection:
- 50% collected in the current month = 50% x $120,000 = $60,000
- 30% collected in the next month = 30% x $120,000 = $36,000
- Total expected collection = $60,000 + $36,000 = $96,000
Month 3:
- Credit sales: $90,000
- Expected collection:
- 50% collected in the current month = 50% x $90,000 = $45,000
- 30% collected in the next month = 30% x $90,000 = $27,000
- Total expected collection = $45,000 + $27,000 = $72,000
Month 4:
- Credit sales: $70,000
- Expected collection:
- 50% collected in the current month = 50% x $70,000 = $35,000
- 30% collected in the next month = 30% x $70,000 = $21,000
- Remaining amount collected in the month after = $70,000 - ($35,000 + $21,000) = $14,000
Therefore, the expected cash collections in months 3 and 4 are $72,000 and $14,000, respectively.