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 20% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 20% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $310,000, and March sales totaled $340,000. 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.

April May June Total   Budgeted sales (all on account) $380,000     $580,000     $200,000     $1,160,000

Explanation / Answer

1.

2.

Silver Company Schedule of Expected Cash Collections April May June Total February sales 62,000 (310,000*20%) 62,000 March sales 204,000 (340,000*60%) 68,000 (340,000*20%) 272,000 April sales 76,000 (380,000*20%) 228,000 (380,000*60%) 76,000 (380,000*20%) 380,000 May sales 116,000 (580,000*20%) 348,000 (580,000*60%) 464,000 June sales 40,000 (200,000*20%) 40,000 Total cash collections 342,000 412,000 464,000 1,218,000

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