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. What is the accounts receivable balance on June 30th?

Answer 1

1.

	april	may	june	total
collection from current month sales (25% * 310,000....510,000.....160,000)	77,500	127,500	40,000	245,000
collection of previous month sales (60%*270,000.....310,000....510,000)	162,000	186,000	306,000	654,000
collection of sale two months ago (15%*240,000.....270,000....310,000)	36,000	40,500	46,500	123,000
total	275,500	354,000	392,500	1,022,000

2..

Accounts receivable balance on June 30.

75% of Junes sales (75%*160,000)	120,000
15% of may sales (510,000*15%)	76,500
total accounts receivable	$196,500