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)	$330,000	$530,000	$210,000	$1,070,000

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 $260,000, and March sales totaled $290,000.

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

Schedule of Expected Cash Collections Particulars April May June Total February sales 39000 39000 March Sales 174000 43500 217500 April Sales 82500 198000 49500 330000 May Sales 132500 318000 450500 June Sales 52500 52500 Total cash collections 295500 374000 420000 1089500 Account receivable on June 30th Particulars June May Sales 795001 June Sales 157500 Total 2370001