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)	$300,000	$500,000	$200,000	$1,000,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% 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 $230,000, and March sales totaled $260,000.

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

April

20% of current sales + 70% of march sales + 10% of february sales

May

20% of current sales + 70% of april sales + 10% of march sales

June

20% of current sales + 70% of May sales + 10% of April sales

below is the calculation with the formulas

account receivable remaining = 10% of may sales + 80% of june sales ( since these are the sales yet to be collected)

account receivable remaining = 500000*10% + 80%*200000

account receivable remaining = 50000 + 160000 = 210000

thanks! if you have any doubts please leave a comment and let me know