Question

In: Accounting

Exercise 8-1 Schedule of Expected Cash Collections [LO8-2] Silver Company makes a product that is very...

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) $450,000 $650,000 $250,000 $1,350,000

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 $380,000, and March sales totaled $410,000.

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?

Solutions

Expert Solution

April May June Total
Budgeted sales (all on account)        450,000        650,000        250,000        1,350,000
Schedule of expected cash collection
April May June Total
25% in the Month of sale        112,500        162,500           62,500            337,500
60% in the month following the sale        246,000        270,000        390,000            906,000
15% in the second month following sale           57,000           61,500           67,500            186,000
Total expected collections        415,500        494,000        520,000        1,429,500
2.Accounts receivable balance on June 30
15% of May Sales           97,500
75% of June Sales        187,500
Receivables balance on June 30        285,000

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