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)	$310,000	$510,000	$160,000	$980,000

     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 $240,000, and March sales totaled $270,000.

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

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

	April	May	June	Total
February sales	240000*15% = 36000			36000
March sales	270000*60% = 162000	270000*15% = 40500		202500
April sales	310000*25% = 77500	310000*60% = 186000	310000*15% = 46500	310000
May sales		510000*25% = 127500	510000*60% = 306000	433500
June sales			160000*25% = 40000	40000
Total cash collection	275500	354000	392500	1022000

2) Account receivable balance as of june 30 = (510000*15%+160000*75%) = 196500