Exercise 7-1 Schedule of Expected Cash Collections [LO7-2] Silver Company makes a product that is very...

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)	$410,000	$610,000	$210,000	$1,230,000

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 $340,000, and March sales totaled $370,000.

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.

Solutions

Expert Solution

Answer:-1)-

Statement of cash collection from debtors
Particulars	April	May	June	Total
Sales $	410000	610000	210000	1230000

Cash Collection
25% in month of sale	410000*25% =102500	610000*25% =152500	210000*25% =52500	307500
60% in following month of sale	370000*60% =222000	410000*60% =246000	610000*60% =366000	834000
15% in the second month following sale	340000*15% =51000	370000*15% =55500	410000*15% =61500	168000

Total collection	375500	454000	480000	1309500

Explanation:-

Statement of cash collection from debtors
Particulars	February	March	April	May	June	Total
Sales $	340000	370000	410000	610000	210000	1230000

Cash Collection
25% in month of sale	340000*25% =85000	370000*25% =92500	410000*25% =102500	610000*25% =152500	210000*25% =52500	307500
60% in following month of sale		340000*60% =204000	370000*60% =222000	410000*60% =246000	610000*60% =366000	834000
15% in the second month following sale			340000*15% =51000	370000*15% =55500	410000*15% =61500	168000

Total collection	85000	296500	375500	454000	480000	1309500

2)-Accounts receivable on June 30:-

May month =$610000*15% =$91500

June month =$210000*75% =$157500

ekkarill92 answered 11 months ago

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