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.

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?

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.

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?

Schedule of Expected Cash

April May June Total

February sales

March sales

April sales

May sales

June sales

Total cash collections

Answer 1

Solution 1:

Schedule of expected cash collection - Silver company
Particulars	April	May	June	Total
Cash received for Feburary Sale	$54,000.00			$54,000.00
Cash received for March Sale	$234,000.00	$58,500.00		$292,500.00
Cash received for April Sale	$107,500.00	$258,000.00	$64,500.00	$430,000.00
Cash received for May Sale		$157,500.00	$378,000.00	$535,500.00
Cash received for June Sale			$50,000.00	$50,000.00
Budgeted Cash Collection	$395,500.00	$474,000.00	$492,500.00	$1,362,000.00

Solution 2:

Accounts receivable balance on June 30th = ($630,000*15%) + ($200,000*75%) = $244,500