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)	$320,000	$520,000	$180,000	$1,020,000

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 65% 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 $250,000, and March sales totaled $280,000.

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
February sales	12500			12500
March sales	182000	14000		196000
April sales	96000	208000	16000	320000
May sales		156000	338000	494000
June Sales			54000	54000
Total cash collections	290500	378000	408000	1076500
2
May sales	26000	=520000*5%
June Sales	126000	=180000*70%
Accounts receivable balance on June 30	152000
Workings:
	April	May	June
February sales	=250000*5%
March sales	=280000*65%	=280000*5%
April sales	=320000*30%	=320000*65%	=320000*5%
May sales		=520000*30%	=520000*65%
June Sales			=180000*30%