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

1. Schedule of expected cash collections

	April	May	June	Quarter
February sales	$23,000 ($230,000*10%)			$23,000
March sales	$182,000 ($260,000*70%)	$26,000 ($260,000*10%)		$208,000
April sales	$60,000 ($300,000*20%)	$210,000 ($300,000*70%)	$30,000 ($300,000*10%)	$300,000
May sales		$100,000 ($500,000*20%)	$350,000 ($500,000*70%)	$450,000
June sales			$40,000 ($200,000*20%)	$40,000
	$265,000	$336,000	$420,000	$1,021,000

2. Accounts receivable balance on June 30 = 80% of june sales + 10% of may sales

= ($200,000 * 80%) + ($500,000 * 10%)

= $160,000 + $50,000

= $210,000