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)	$310,000	$510,000	$160,000	$980,000

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 $240,000, and March sales totaled $270,000.

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

The Preparation of schedule of expected cash collections from sales, by month and in total, for the second quarter is prepared below with the help of a spreadsheet:-

with the help of given formulas:-

2. The computation of accounts receivable balance on June 30th is shown below:-

Total account receivable on June 30th = Sales of May + Sales of June

= ($510,000 * 15%) + ($160,000 * (60% + 15%)

= $76,500 + $120,000

= $196,500