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)	$490,000	$690,000	$220,000	$1,400,000

     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 $420,000, and March sales totaled $450,000.

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

Solution

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$ 63,000			$ 63,000
March Sales	$ 270,000	$ 67,500		$ 337,500
April Sales	$ 122,500	$ 294,000	$ 73,500	$ 490,000
May Sales		$ 172,500	$ 414,000	$ 586,500
June Sales			$ 55,000	$ 55,000
Total Cash Collection	$ 455,500	$ 534,000	$ 542,500	$ 1,532,000

.

Total Receivables at June 30

$ 268,500

Working

February Sales	=420000*15%
March Sales	=450000*60%	=450000*15%
April Sales	=490000*25%	=490000*60%	=490000*15%
May Sales		=690000*25%	=690000*60%
June Sales			=220000*25%

.

Accounts Receivables Balance
Balance of may sales	(15% of sale)	$ 103,500
Balance of June Sale	(75% of sale)	$ 165,000
Total Receivables at June 30		$ 268,500