Silver Company makes a product that is very popular as a Mother’s Day gift. Thus

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:

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 60% 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 $330,000, and March sales totaled $360,000.

Required:

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

2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.

Explanation / Answer

1 Schedule of Expected Cash Collections April May June Total February sales 33000 $33,000 March sales 216000 36000 $252,000 April sales 120000 240000 40000 $400,000 May sales 180000 360000 $540,000 June sales 57000 $57,000 Total cash collections $369,000 $456,000 $457,000 $1,282,000 2 May sales 60000 =600000*10% June sales 133000 =190000*70% Total accounts receivable at June 30 193000

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