Silver Company makes a product that is very popular as a Mother\'s Day gift. Thu
ID: 2470751 • Letter: S
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 #390,000, and March sales totaled $420,000. Prepare a schedule of expected cash collection from sales, by month and in total, for the second quarter. Assume that the company will prepare a budgeted a balance sheet as a June 30 Compute the accounts receivable as of that date.Explanation / Answer
1.
Prepare a schedule of expected cash collections from sales by month and in total for the second quarter:
Schedule of expected cash collections
Details
Feb
Mar
Apr
May
Jun
Total sales
$ 390,000
$ 420,000
$ 460,000
$ 660,000
$ 210,000
Cash collected in the month of sale @20%
$ 78,000
$ 84,000
$ 92,000
$ 132,000
$ 42,000
Cash collected in the month following sale @60%
$ 234,000
$ 252,000
$ 276,000
$ 396,000
Cash collected in the second month following sale @20%
$ 78,000
$ 84,000
$ 92,000
Total cash collections
$ 78,000
$ 318,000
$ 422,000
$ 492,000
$ 530,000
2.
Prepare a budgeted balance sheet as of June 30 compute the accounts receivable as of that date:
Details
Amount
May sales ($660,000 -$132,000 - $396,000)
$ 132,000
June Sales ($210,000 -$42,000)
$ 168,000
Total accounts receivable at June 30
$ 300,000
Therefore, total accounts receivable of June 30 is $300,000.
Schedule of expected cash collections
Details
Feb
Mar
Apr
May
Jun
Total sales
$ 390,000
$ 420,000
$ 460,000
$ 660,000
$ 210,000
Cash collected in the month of sale @20%
$ 78,000
$ 84,000
$ 92,000
$ 132,000
$ 42,000
Cash collected in the month following sale @60%
$ 234,000
$ 252,000
$ 276,000
$ 396,000
Cash collected in the second month following sale @20%
$ 78,000
$ 84,000
$ 92,000
Total cash collections
$ 78,000
$ 318,000
$ 422,000
$ 492,000
$ 530,000
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