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: April May June Total Budgeted sales (all on account) $340,000 $540,000 $170,000 $1,050,000 From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 75% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $270,000, and March sales totaled $300,000.

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.

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

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

Explanation / Answer

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

Account receivable on june 30 = (540000*5%+170000*80%) = 163000

April May June quarter Sales 340000 540000 170000 1050000 Collection 20% of month's sales 68000 108000 34000 210000 75% of prior month's sale 225000 255000 405000 885000 5% of two month prior sale 13500 15000 17000 45500 Total cash collection 306500 378000 456000 1140500

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