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)	$410,000	$610,000	$210,000	$1,230,000

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 $340,000, and March sales totaled $370,000.

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

     

2.	Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.

     

Answer 1

(1). Schedule of expected cash collections from sales;

	April	May	June	Total
Collection from February sales	$51000	---	----	$51000
Collection from March sales	$222000	$55500	----	$277500
Collection from April sales	$102500	$246000	$61500	$410000
Collection from May sales	----	$152500	$366000	$518500
Collection from June sales	----	----	$52500	$52500
Total cash collection	$375500	$454000	$480000	$1309500

(2). Accounts receivable as on June 30 = $249000

Explanation;

As per informatio of the question, it is clear that some part of May month’s sale and some part of June month’s sale is not collected till June 30. Hence not collected portion of sales will be balance of accounts receivable as on June 30.

Thus let’s calculated that balance;

15% of May’s sale is not collected ($610000 * 0.15) = $91500

75% of June sale is not collected ($210000 * 0.75) = $157500

Thus Balance of Accounts Receivable as on June 30 ($91500 + $157500) = $249000