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)	$420,000	$620,000	$240,000	$1,280,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 65% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $350,000, and March sales totaled $380,000.

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 collection:
15% of February sales	$52,500
65% of March sales	$247,000
20% of April sales	$84,000
Total		$383,500
May collection:
15% of March sales	$57,000
65% of April sales	$273,000
20% of May sales	$124,000
Total		$454,000
June collection:
15% of April sales	$63,000
65% of May sales	$403,000
20% of June sales	$48,000
Total		$514,000
Total collection		$1,351,500

2)

Accounts receivable balance on June 30th
15% of May sales	$93,000
80% of June sales	$192,000
Total		$285,000