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)	$380,000	$580,000	$200,000	$1,160,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 20% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $310,000, and March sales totaled $340,000. Required:

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

Silver Company
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

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

Silver Company
Accounts receivable at June 30
May sales
June sales
Total accounts receivable at June 30	$0

Answer 1

1.

Silver Company
Schedule of Expected Cash Collections
	April	May	June	Total
February sales	62,000 (310,000*20%)			62,000
March sales	204,000 (340,000*60%)	68,000 (340,000*20%)		272,000
April sales	76,000 (380,000*20%)	228,000 (380,000*60%)	76,000 (380,000*20%)	380,000
May sales		116,000 (580,000*20%)	348,000 (580,000*60%)	464,000
June sales			40,000 (200,000*20%)	40,000
Total cash collections	342,000	412,000	464,000	1,218,000

2.

Silver Company
Accounts receivable at June 30
May sales	116,000 (580,000*20%)
June sales	160,000 (200,000*80%)
Total accounts receivable at June 30	276,000