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)	$350,000	$550,000	$190,000	$1,090,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $280,000, and March sales totaled $310,000.

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?

	Schedule of Expected Cash Collections April May June Total February sales March sales April sales May sales June sales Total cash collections

	Total accounts receivable at June 30

Answer 1

Requirement 1

April May June Total February sales ($280,000) (5% x $280,000) = $14,000 $ 14,000 March sales ($310,000) (70% x $310,000) = $217,000 (5% x $310,000) = $15,500 232,500 April sales ($350,000) (25% x $350,000 ) = $87,500 (70% x $350,000) = $245,000 (5% x $350,000) = $17,500 350,000 May sales ($550,000) (25% x $550,000) = $137,500 (70% x $550,000) = $385,000 522,500 June sales ( $190,000) (25% x $190,000) = $47,500 47,500 Total cash collections $318,500 $398,000 $450,000 $1,166,500

Febuary Sale - 25% in Feb, 70% in March, 5% in April
March sales - 25% in March, 70% in April, 5% in May
April sales - 25% in April , 70% in May, 5% in June
May Sales - 25% in May , 70% in June, 5% in July
June Sales - 25% in June, 70% in July, 5% in August

Requirement 2

	Accounts Receivable on June30
From May Sales	( 5% of $550,000) = $27,500
From June Sales	(70% + 5%) x $190,000 = $142,500
Total Accounts Receivable on June30	$170,000