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)	$400,000	$600,000	$190,000	$1,190,000

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 60% 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 $330,000, and March sales totaled $360,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

Schedule of Expected Cash Collections
	April	May	June	Total
February sales
March sales
April sales
May sales
June sales
Total cash collections

2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.

May sales
June sales
Total accounts receivable at June 30

Answer 1

		Feb	Mar	April	May	June	Total
	Budgeted Sales	330000	360000	400000	600000	190000	1190000
	Schedule of Expected Cash Collections
		April	May	June	Total
	February sales	33000			33000
	March sales	216000	36000		252000
	April sales	120000	240000	40000	400000
	May sales		180000	360000	540000
	June sales			57000	57000
	Total cash collections	369000	456000	457000	1282000
	May Sales	60000		(600000*10%)
	June Sales	133000		(190000*70%)
	Total Account Receivables at Jun 30	193000