Exercise 7-1 Schedule of Expected Cash Collections [LO7-2] Silver Company makes

Question

Exercise 7-1 Schedule of Expected Cash Collections [LO7-2]

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 25% of a month’s sales are collected in the month of sale, another 65% 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 $300,000, and March sales totaled $330,000.

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

     

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

     

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:

Explanation / Answer

1. 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.

Account Receivable -- June 30

Check : Account Receivable on June 30 = Total Sales - Total Cash Collection

= $1,750,000 - $1,558,000

= $192,000

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February March April May June Total 25% Collected in the month of sale $75,000 $82,500 $92,500 $142,500 $45,000 $280,000 65% Collected in the month after sale $195,000 $214,500 $240,500 $370,500 $825,500 10% Collected in the 2nd month after sale $30,000 $33,000 $37,000 $100,000 Total $75,000 $277,500 $337,000 $416,000 $452,500 $1,205,500

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