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)	$470,000	$670,000	$230,000	$1,370,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 65% 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 $400,000, and March sales totaled $430,000.

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

Requirement 1
Schedule of Cash collections for the second Quarter
	Sales	April	May	June	Total
Collection against Feburary Sales	400,000	40,000			40,000
		(400,000*10%)
Collection against March Sales	430,000	279,500	43000		322,500
		(430,000*65%)	(430,000*10%)
Collection against April Sales	470,000	117500	305500	47000	470,000
		(470,000*25%)	(430,000*65%)	(430,000*10%)
Collection against May Sales	670,000		167500	435500	603,000
			(670,000*25%)	(670,000*65%)
Collection against June Sales	230,000			57500	57,500
				(230,000*25%)
Total Collections		437,000	516,000	540,000	1,493,000
Requirement 2
Accounts receivable as of June 30
Accounts Receivable against May sales		(670,000-603,000)	67,000
Accounts Receivable against May sales		(230000-57500)	172,500
Accounts receivable as of June 30			239,500