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) $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.

Answer 1

	April	May	June
February sales	$51,000 (340,000*15%)	0	0
March sales	$222,000 ($370,000*60%)	$55,500 ($370,000*15%)	0
April sales	$102,500 ($410,000*25%)	$246,000 ($410,000*60%)	$61,500 ($410,000*15%)
May sales	0	$152,500 ($610,000*25%)	$366,000 ($610,000*60%)
June sales	0	0	$52,500 ($210,000*25%)
Total cash collection	$375,500	$454,000	$480,000

Compute the account receivables

May ($610,000*15%)	$91,500
June($210,000*75%)	$157,500
Total accounts receivables	$249,000