Question

Exercise 8-1 Schedule of Expected Cash Collections [LO8-2]

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. What is the accounts receivable balance on June 30th?

Answer 1

1.

Cash collections schedule
	April	May	June	Quarter
Feb Sales	$         51,000			$         51,000
Mar Sales	$      222,000	$         55,500		$      277,500
April Sales	$      102,500	$      246,000	$         61,500	$      410,000
May Sales		$      152,500	$      366,000	$      518,500
June Sales			$         52,500	$         52,500
Total Cash Collections	$      375,500	$      454,000	$      480,000	$   1,309,500

2.
Balance of Accounts Receivable = $610000 x 15% + 210000 x 75% = $249000