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)	$440,000	$640,000	$220,000	$1,300,000

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 $370,000, and March sales totaled $400,000.

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.

	April	May	June	Total
From February sales	370,000 x 10% = 37,000			37,000
From March sales	400,000 x 60% = 240,000	400,000 x 10% = 40,000		280,000
From April sales	440,000 x 30% = 132,000	440,000 x 60% = 264,000	440,000 x 10% = 44,000	440,000
From May sales	0	640,000 x 30% = 192,000	640,000 x 60% = 384,000	576,000
From June sales	0	0	220,000 x 30% = 66,000	66,000
Total cash collection	409,000	496,000	494,000	1,399,000

2.

Accounts receivable balance on June 30 = 10% of May sales + 70% of June sales

= 640,000 x 10% + 220,000 x 70%

= 64,000+154,000

= $218,000