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)	$300,000	$500,000	$200,000	$1,000,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% 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 $230,000, and March sales totaled $260,000.

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?

• Required 1
• Required 2

Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

	Schedule of Expected Cash Collections April May June Total February sales March sales April sales May sales June sales Total cash collections

Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

	Schedule of Expected Cash Collections April May June Total February sales March sales April sales May sales June sales Total cash collections

Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

Total Accounts Receivable for June 30th:

Answer 1

1.

Schedule of Expected Cash Collections April May June Total February sales 230,000 x 10% = 23,000 0 0 23,000 March sales 260,000 x 70% = 182,000 260,000 x 10% = 26,000 0 208,000 April sales 300,000 x 20% = 60,000 300,000 x 70% = 210,000 300,000 x 10% = 30,000 300,000 May sales 0 500,000 x 20% = 100,000 500,000 x 70% = 350,000 450,000 June sales 0 0 200,000 x 20% = 40,000 40,000 Total cash collections $265,000 $336,000 $420,000 $1,021,000

2.

Accounts receivable on June 30 = 10% of May sales + 80% of June sales

= 500,000 x 10% + 200,000 x 80%

= 50,000+160,000

= $210,000

Total Accounts Receivable for June 30th:= $210,000

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