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)	$310,000	$510,000	$160,000	$980,000

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 $240,000, and March sales totaled $270,000.

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. Schedule of expected cash collections

	April	May	June	Total
From the sale of February	240,000 x 15% = 36,000	0	0	36,000
From the sale of March	270,000 x 60%= 162,000	270,000 x 15% = 40,500	0	202,500
From the sale of April	310,000 x 25%= 77,500	310,000 x 60% = 186,000	310,000 x 15% = 46,500	310,000
From the sale of May	0	510,000 x 25% = 127,500	510,000 x 60%= 306,000	433,500
From the sale of June	0	0	160,000 x 25%= 40,000	40,000
Total	$275,500	$354,000	$392,500	$1,022,000

2.

Accounts receivable on June 30 = 75% of June sales + 15% of May sales

= 160,000 x 75% + 510,000 x 15%

= 120,000+76,500

= $196,500