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 $350,000 May $550.000 June $190,000 Total $1,090,000 Budgeted sales (all on account) From past experience, the company has learned that 25% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $280,000, and March sales totaled $310.000. 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 Maroh sales April sales May sales June sales Total cash collections | $ 0 $ 0 $ 0 $ 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

Answer 1

Answer:

Cash is received 25% in same month, 70% in next month of sales and 5% in second month following the sale month.

Bad debts are not considered as stated.

1.Schedule of expected cash collections from sales, by month and in total

Silver Company
Schedule of Expected Cash Collection
	April	May	June	Total
February Sales	$14,000	-	-	$14,000
March Sales	$217,000	$15,500	-	$232,500
April Sales	$87,500	$245,000	$17,500	$350,000
May Sales	-	$137,500	$385,000	$522,500
June Sales	-	-	$47,500	$47,500
Total Cash Collection	$318,500	$398,000	$450,000	$1,166,500

Cash received from February Sales in April = $280,000 * 5% = $14,000

Cash received from March sales in April = $310,000 * 70% = $217,000

Cash received from March sales in May = $310,000 * 5% = $15,500

Cash received from April sales in April = $350,000 * 25% = $87,500

Cash received from April sales in May = $350,000 * 70% = $245,000

Cash received from April sales in June = $350,000 * 5% = $17,500

Cash received from May sales in May = $550,000 * 25% = $137,500

Cash received from May sales in June = $550,000 * 70% = $385,000

Cash received from June sales in June = $190,000 * 25% = $47,500

2. Computation of Accounts Receivable as on June 30

Silver Company
Accounts receivable at June 30
May Sales	$27,500
June Sales	$142,500
Total Accounts receivable at June 30	$170,000

In May month sales 95% of cash is received (25+70) in May and June month, Receivable = $550,000 * 5% = $27,500

In June month sales 25% of cash is received in June month, Receivable = $190,000 * 75%(70+5) = $142,500