Question

Chec 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 May June Total $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. Schedule of Expected Cash Collections April May Junt Total February sales March sales April sales May sales June sales Total cash collections

Answer 1

1. 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	$23,000 ($2,30,000 * 10%)	-	-	$23,000
March Sales	$1,82,000 ($2,60,000 * 70%)	$26,000 ($2,60,000 * 10%)	-	$2,08,000
April Sales	$60,000 ($3,00,000 * 20%)	$2,10,000 ($3,00,000 *70%)	$30,000 ($3,00,000 * 10%)	$3,00,000
May Sales	-	$1,00,000 ($5,00,000 * 20%)	$3,50,000 ($5,00,000 * 70%)	$4,50,000
June Sales	-	-	$40,000 ($2,00,000 *20%)	$40,000
Total Cash Collections	$2,65,000	$3,36,000	$4,20,000	$10,21,000

2. Computation of the Accounts Receivable as on June 30:

May Sales	$50,000 ($5,00,000 * 10 %)
June Sales	$1,60,000 ($2,00,000 * 80%)
Total Accounts Receivable at June, 30	$2,10,000