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)	$330,000	$530,000	$210,000	$1,070,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $260,000, and March sales totaled $290,000.

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

1.

Silver Company
Schedule of Expected Cash Collection
	April	May	June	Total
February Sales	$260,000*15% = $39,000			$        39,000
March Sales	$290,000*60% = $174,000	$290,000*15% = $43,500		$     217,500
April Sales	$330,000*25% = $82,500	$330,000*60% = $198,000	$330,000*15% = $49,500	$     330,000
May Sales		$530,000*25% = $132,500	$530,000*60% = $318,000	$     450,500
June Sale			$210,000*25% = $52,500	$        52,500
Total Cash Collection	$                                   295,500	$                                   374,000	$                                   420,000	$ 1,089,500

2.

Silver Company
Accounts Receiveble at June 30
May Sales	$530,000*15% = $79,500
June Sales	$210,000*75% = $157,500
Total Accounts Receiveble at June 30	$                                   237,000

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