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)	$460,000	$660,000	$210,000	$1,330,000

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 $390,000, and March sales totaled $420,000. 

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
February Sales	390,000 x 20% = 78,000			$78,000
March Sales	420,000 x 60% = 252,000	420,000 x 20% = 84,000		$336,000
April Sales	460,000 x 20% = 92,000	460,000 x 60% = 276,000	460,000 x 20% = 92,000	$460,000
May Sales		660,000 x 20% = 132,000	660,000 x 60% = 396,000	$528,000
June Sales			210,000 x 20% = 42,000	$42,000
Total Cash Collections	$422,000	$492,000	$530,000	$1,444,000

2.

Accounts receivable on June 30 = 20% of May sales + 80% of June sales

= 660,000 x 20% + 210,000 x 80%

= 132,000+168,000

= $300,000