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)	$350,000	$550,000	$190,000	$1,090,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $280,000, and March sales totaled $310,000.

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

Requirement 1

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$ 14,000			$ 14,000
March Sales	$ 217,000	$ 15,500		$ 232,500
April Sales	$ 87,500	$ 245,000	$ 17,500	$ 350,000
May Sales		$ 137,500	$ 385,000	$ 522,500
June Sales			$ 47,500	$ 47,500
Total Cash Collection	$ 318,500	$ 398,000	$ 450,000	$ 1,166,500

Requirement 2

Silver company
Accounts receivables at june 30
May sales	$ 27,500
June sales	$ 142,500
Total Accounts receivables at june 30	$ 170,000

Working

Schedule of Expected Cash Collections
	April	May	June
February Sales	=280000*5%
March Sales	=310000*70%	=310000*5%
April Sales	=350000*25%	=350000*70%	=350000*5%
May Sales		=550000*25%	=550000*70%
June Sales			=190000*25%

.

Accounts Receivables Balance
Balance of may sales	(5% of sale)	$ 27,500
Balance of June Sale	(75% of sale)	$ 142,500
Total Receivables at June 30		$ 170,000