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: Budgeted sales (all on account) April $440,000 May $640,000 June $220,000 Total $1,300,000 From past experience, the company has learned that 30% of a month's sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $370,000, and March sales totaled $400,000. 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 March sales April sales May sales June sales Total cash collections 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

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Answer 1

Solution

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$ 37,000			$ 37,000
March Sales	$ 240,000	$ 40,000		$ 280,000
April Sales	$ 132,000	$ 264,000	$ 44,000	$ 440,000
May Sales		$ 192,000	$ 384,000	$ 576,000
June Sales			$ 66,000	$ 66,000
Total Cash Collection	$ 409,000	$ 496,000	$ 494,000	$ 1,399,000

Silver company
Accounts receivables at june 30
May sales	$ 64,000
June sales	$ 154,000
Total Accounts receivables at june 30	$ 218,000

Working

Schedule of Expected Cash Collections
	April	May	June
February Sales	=370000*10%
March Sales	=400000*60%	=400000*10%
April Sales	=440000*30%	=440000*60%	=440000*10%
May Sales		=640000*30%	=640000*60%
June Sales			=220000*30%

.

Accounts Receivables Balance
Balance of may sales	(10% of sale)	$ 64,000
Balance of June Sale	(70% of sale)	$ 154,000
Total Receivables at June 30		$ 218,000