Question

Exercise 7-1 Schedule of Expected Cash Collections [LO7-2]

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:

 From past experience, the company has learned that 25% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $280,000, and March sales totaled $310,000.

 Required:

 1. 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

Solution 1:

Schedule of expected cash collection - Silver Company
Particulars	April	May	June	Total
Feburary Sales	$14,000.00			$14,000.00
March Sales	$217,000.00	$15,500.00		$232,500.00
April Sales	$87,500.00	$245,000.00	$17,500.00	$350,000.00
May Sales		$137,500.00	$385,000.00	$522,500.00
June Sales			$47,500.00	$47,500.00
Total cash collections	$318,500.00	$398,000.00	$450,000.00	$1,166,500.00

Solution 2:

Silver Company
Accounts Receivables at June 30
Particulars	Amount
May Sales	$27,500.00
June Sales	$142,500.00
Total Accounts receivables at june 30	$170,000.00