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.

	Schedule of Expected Cash Collections April May June Total February sales          $0    March sales 0 April sales 0 May sales 0 June sales 0 Total cash collections $0 $0 $0 $0

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

	Total accounts receivable at June 30

Answer 1

Ans. 1	Schedule of Expected Cash Collection
		April	May	June
	February sales	$40,000
	March sales	$279,500	$43,000
	April sales	$117,500	$305,500	$47,000
	May sales		$167,500	$435,500
	June sales			$57,500
	Total cash collection	$437,000	$516,000	$540,000
Ans. 2	May sales   ($670,000 * 10%)	$67,000
	June sales ($230,000 * 75%)	$172,500
	Total accounts receivable balance	$239,500
	Calculation of Cash collections:
		April	May	June
	February sales	$400,000 * 10%
	March sales	$430,000 * 65%	$430,000 * 10%
	April sales	$470,000 * 25%	$470,000 * 65%	$470,000 * 10%
	May sales		$670,000 * 25%	$670,000 * 65%
	June sales			$230,000 * 25%
	10% of May month's credit sales will be collected in July and 75% of June months' credit sales will be collected in
	the following month's so these are the accounts receivable.