Question

Exercise 7-1 Schedule of Expected Cash Collections [LO7-2]

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)	$370,000	$570,000	$180,000	$1,120,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 65% 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 $300,000, and March sales totaled $330,000.

Required:
1.	Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

     

2.	Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.

     

Answer 1

1. Schedule of expected cash collections from sales, by month and in total, for the second quarter.

	February	March	April	May	June	Total
25% Collected in the month of sale	$75,000	$82,500	$92,500	$142,500	$45,000	$280,000
65% Collected in the month after sale		$195,000	$214,500	$240,500	$370,500	$825,500
10% Collected in the 2nd month after sale			$30,000	$33,000	$37,000	$100,000
Total	$75,000	$277,500	$337,000	$416,000	$452,500	$1,205,500

2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.

Account Receivable -- June 30

		% Uncollected	Account Receivable
From May Sales	$570,000	10%	$57,000
From June Sales	$180,000	75%	$135,000
Total A/R			$192,000

Check : Account Receivable on June 30 = Total Sales - Total Cash Collection

= $1,750,000 - $1,558,000

= $192,000

"It would be appreciated if you give your feedback on this answer"