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)	$340,000	$540,000	$170,000	$1,050,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 75% 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 $270,000, and March sales totaled $300,000.

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

Requirement 1

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$     13,500.00			$        13,500.00
March Sales	$ 2,25,000.00	$     15,000.00		$    2,40,000.00
April Sales	$     68,000.00	$ 2,55,000.00	$     17,000.00	$    3,40,000.00
May Sales		$ 1,08,000.00	$ 4,05,000.00	$    5,13,000.00
June Sales			$     34,000.00	$        34,000.00
Total Cash Collection	$ 3,06,500.00	$ 3,78,000.00	$ 4,56,000.00	$ 11,40,500.00

Requirement 2

Total Receivables at June 30

$ 1,63,000.00

Working

Accounts Receivables Balance
Balance of may sales	(5% of sale)	$     27,000.00
Balance of June Sale	(80% of sale)	$ 1,36,000.00
Total Receivables at June 30		$ 1,63,000.00

	April	May	June
February Sales	=270000*5%
March Sales	=300000*75%	=300000*5%
April Sales	=340000*20%	=340000*75%	=340000*5%
May Sales		=540000*20%	=540000*75%
June Sales			=170000*20%