Question

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

	April	May	June	Total
Budgeted sales (all on account)	$480,000	$680,000	$260,000	$1,420,000

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $410,000, and March sales totaled $440,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

Answer 1

Answer)

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$                        41,000	-	-
March Sales	$                     264,000	$            44,000	-
April Sales	$                     144,000	$          288,000	$              48,000
May Sales	-	$          204,000	$            408,000
June Sales	-	-	$              78,000
Total Cash Collections	$                     449,000	$          536,000	$            534,000	$             1,519,000

Working Notes:

Calculation of Cash collection in the month of April

From February’s Sales = Total sales in February X 10%

                                       = $ 410,000 X 10%

                                       = $ 41,000

From March’s Sales = Total sales in March X 60%

                                   = $ 440,000 X 60%

                                   = $ 264,000

From April’s Sales = Total sales in April X 30%

                                   = $ 480,000 X 30%

                                   = $ 144,000

Calculation of Cash collection in the month of May

From March’s Sales = Total sales in March X 10%

                                    = $ 440,000 X 10%

                                    = $ 44,000

From April’s Sales = Total sales in April X 60%

                                   = $ 480,000 X 60%

                                   = $ 288,000

From May’s Sales = Total sales in May X 30%

                                   = $ 680,000 X 30%

                                   = $ 204,000

Calculation of Cash collection in the month of June

From April’s Sales = Total sales in April X 10%

                                 = $ 480,000 X 10%

                                 = $ 48,000

From May’s Sales = Total sales in May X 60%

                                 = $ 680,000 X 60%

                                 = $ 408,000

From June’s Sales = Total sales in June X 30%

                                  = $ 260,000 X 30%

                                   = $ 78,000