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)	$420,000	$620,000	$240,000	$1,280,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 65% 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 $350,000, and March sales totaled $380,000.

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 from sales

	April	May	June	Total
Cash receipts from February sales	350,000 x 15% = 52,500	0	0	52,500
Cash receipts from March sales	380,000 x 65% = 247,000	380,000 x 15% = 57,000	0	304,000
Cash receipts from April sales	420,000 x 20% = 84,000	420,000 x 65% = 273,000	420,000 x 15% = 63,000	420,000
Cash receipts from May sales	0	620,000 x 20% = 124,000	620,000 x 65% = 403,000	527,000
Cash receipts from June sales	0	0	240,000 x 20% = 48,000	48,000
	383,500	454,000	514,000	1,351,500

2.

Accounts receivable balance on June 30th = 15% of May sales + 80% of June sales

= 620,000 x 15% + 240,000 x 80%

= 93,000 + 192,000

= $285,000

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