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. What is the accounts receivable balance on June 30th?

Answer 1

1.

Schedule of expected cash collections

	April	May	June	Total
Cash collected in the month of sale	$102,500 ($410,000*25%)	$152,500 ($610,000*25%)	$52,500 ($210,000*25%)	$307,500
Cash collected in the month following the sale	$222,000 ($370,000*60%)	$246,000 ($410,000*60%)	$366,000 ($610,000*60%)	$834,000
Cash colelcted in the second month following the sale	$51,000 ($340,000*15%)	$55,500 ($370,000*15%)	$61,500 ($410,000*15%)	$168,000
	$375,500	$454,000	$480,000	$1,309,500

2. Accounts receivable balance on June 30th = 15% of May sales + 75% of June sales

= ($610,000 * 15%) + ($210,000 * 75%)

= $249,000