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)	$470,000	$670,000	$230,000	$1,370,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 65% 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 $400,000, and March sales totaled $430,000.

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?

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				$0
March sales				0
April sales				0
May sales				0
June sales				0
Total cash collections	$0	$0	$0	$0

Required 2: What is the accounts receivable balance on June 30th?

Total accounts receivable at June 30

Answer 1

Solution 1:

Schedule of expected cash collection - Silver Company
Particulars	April	May	June	Total
February Sales	$40,000.00			$40,000.00
March Sales	$279,500.00	$43,000.00		$322,500.00
April Sales	$117,500.00	$305,500.00	$47,000.00	$470,000.00
May Sales		$167,500.00	$435,500.00	$603,000.00
June Sales			$57,500.00	$57,500.00
Total Cash Collections	$437,000.00	$516,000.00	$540,000.00	$1,493,000.00

Solution 2:

Accounts receivables on June 30 = (May sales * 10%) + (June Sales * 75%)

= ($670,000*10%) + ($230,000*75%) = $239,500