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)	$410,000	$610,000	$210,000	$1,230,000

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 $340,000, and March sales totaled $370,000.

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

Solution

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$ 51,000			$ 51,000
March Sales	$ 222,000	$ 55,500		$ 277,500
April Sales	$ 102,500	$ 246,000	$ 61,500	$ 410,000
May Sales		$ 152,500	$ 366,000	$ 518,500
June Sales			$ 52,500	$ 52,500
Total Cash Collection	$ 375,500	$ 454,000	$ 480,000	$ 1,309,500

.

Total Receivables at June 30

$ 249,000

Working

	April	May	June
February Sales	=340000*15%
March Sales	=370000*60%	=370000*15%
April Sales	=410000*25%	=410000*60%	=410000*15%
May Sales		=610000*25%	=610000*60%
June Sales			=210000*25%

.

Accounts Receivables Balance
Balance of may sales	(15% of sale)	$ 91,500
Balance of June Sale	(75% of sale)	$ 157,500
Total Receivables at June 30		$ 249,000