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)	$380,000	$580,000	$200,000	$1,160,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 20% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $310,000, and March sales totaled $340,000.

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	$310,000*20% = $62,000			62,000
March Sales	$340,000*60% = $204,000	$340,000*20% = $68,000		272,000
April Sales	$380,000*20% = $76,000	$380,000*60% = $228,000	$380,000*20% = $76,000	380,000
May Sales		$580,000*20% = $116,000	$580,000*60% = $348,000	464,000
June Sale			$200,000*20% = $40,000	40,000
Total Cash Collection	$                                342,000	$                                412,000	$                                464,000	1,218,000

2.

Silver Company
Accounts Receiveble at June 30
May Sales	$580,000*20% = $116,000
June Sales	$200,000*80% = $160,000
Total Accounts Receiveble at June 30	$                                   276,000