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)	$420,000	$620,000	$240,000	$1,280,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 65% 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 $350,000, and March sales totaled $380,000.

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

Question 1

Statement of Budgeted Cash Collection for Second Quarter

	A	B	C	D =A+B+C
Particulars	April	May	June	Total
Collection of February Sales	52,500	0	0	52,500
Collection of March Sales	247,000	57,000	0	304,000
Collection of April Sales	84,000	273,000	63,000	420,000
Collection of May Sales	0	124,000	403,000	527,000
Collection of June Sales	0	0	48,000	48,000
Total Cash Collection	383,500	454,000	514,000	13,51,500

Notes

For April

Collection of February Sales = 15% of February Sales

= 15% of 350,000 = $ 52,500

Collection of March Sales = 65% of March Sales

= 65% of 380,000 = $ 247,000

Collection of April Sales = 20% of April Sales

= 20% of 420,000 = $ 84,000

For May

Collection of March Sales = 15% of March Sales

= 15% of 380,000

= $ 57,000

Collection of April Sales = 65% of April Sales

= 65% of 420,000

= $ 273,009

Collection of May Sales = 20% of May Sales

= 20% of 620,000

= $ 124,090

For June

Collection of April Sales = 15% of April Sales

= 15% of 420,000

= $ 63,000

Collection of May Sales = 65% of May Sales

= 65% of 620,000

= $ 403,000

Collection of June Sales = 20% of June Sales

= 20% of 240,000

= $ 48,000

Question 2

Account Receivable on June 30 = 15% of May Sales + 80% of June Sales

= 93,000 + 192,000

= $ 285,000

Account Receivable Balance on June 30 = $ 285,000

Notes

15% of May Sales = 15% of $ 620,000 = $ 93,000

80% of June Sales = 80% of $ 240,000 = $ 192,000