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)	$430,000	$630,000	$200,000	$1,260,000

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 $360,000, and March sales totaled $390,000.

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

a)

Month of Sale	Credit Sales	April	May	June	Total
February	$        360,000	$    54,000			$        54,000
March	$        390,000	$ 234,000	$    58,500		$     292,500
April	$        430,000	$ 107,500	$ 258,000	$    64,500	$     430,000
May	$        630,000		$ 157,500	$ 378,000	$     535,500
June	$        200,000			$    50,000	$        50,000
Cash collections	$ 395,500	$ 474,000	$ 492,500	$ 1,362,000

b) Accounts receivable as of that date = $ 2,44,500

Month of Sale	Credit Sales	April	May	June	Total Collected	Oustanding
April	$        430,000	$ 107,500	$ 258,000	$    64,500	$     430,000	$                -
May	$        630,000		$ 157,500	$ 378,000	$     535,500	$       94,500
June	$        200,000			$    50,000	$        50,000	$    150,000
Cash collections	$     1,260,000	$ 107,500	$ 415,500	$ 492,500	$ 1,015,500	$    244,500