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)	$360,000	$560,000	$220,000	$1,140,000

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 60% 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 $290,000, and March sales totaled $320,000.

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

1.

Silver Company
Schedule of Expected Cash Collection
	April	May	June	Total
February Sales	$290,000*10% = $29,000			$        29,000
March Sales	$320,000*60% = $192,000	$320,000*10% = $32,000		$     224,000
April Sales	$360,000*30% = $108,000	$360,000*60% = $216,000	$360,000*10% = $36,000	$     360,000
May Sales		$560,000*30% = $168,000	$560,000*60% = $336,000	$     504,000
June Sale			$220,000*30% = $66,000	$        66,000
Total Cash Collection	$                                   329,000	$                                   416,000	$                                   438,000	$ 1,183,000

2.

Silver Company
Accounts Receiveble at June 30
May Sales	$560,000*10% = $56,000
June Sales	$220,000*70% = $154,000
Total Accounts Receiveble at June 30	$                                210,000