Silver Company makes a product with peak sales in May of each year. Its sales budget for the second quarter is given below:

April May June Total
Budgeted sales (all on account) $ 390,000 $ 590,000 $ 230,000 $ 1,210,000

The company estimates 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $320,000, and March sales totaled $350,000.

Required:
Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.
What is the accounts receivable balance on June 30th?

Question

Silver Company makes a product with peak sales in May of each year. Its sales budget for the second quarter is given below:

April	May	June	Total
Budgeted sales (all on account)	$ 390,000	$ 590,000	$ 230,000	$ 1,210,000

The company estimates 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $320,000, and March sales totaled $350,000.

Required:
Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.
What is the accounts receivable balance on June 30th?

BlackTom AI · Accepted Answer

The problem provides a sales budget and a collection pattern: 25% collected in the month of sale, 60% in the following month, and 15% in the second month following sale. Bad debts are negligible. We need to (1) prepare a schedule of expected cash collections by month for April, May, and June, and (2) determine the accounts receivable balance on June 30.

First, break down the monthly collections by source:
- From February sales ($320,000): 25% in February, 60% in March, 15% in April.
- From March sales ($350,000): 25% in March, 60% in April, 15% in May.
- From April sales ($390,000): 25% in April, 60% in May, 15% in June.
- From May sales ($590,000): 25% in May, 60% in June, 15% in July (the second month following May).
- From June sales ($230,000): 25% in June, 60% in July, 15% in August.

Next, compute monthly collections for each month in the second quarter:
- April cash collections come from: February (15%), March (60%), and April (25%).
  - 15% of February: 0.15 × 320,000 = 48,000
  - 60% of March: 0.60 × 350,000 = 210,000
  - 25% of April: 0.25 × 390,000 = 97,500
  - Total April collections: 48,000 + 210,000 + 97,500 = 355,500
- May cash collections come from: March (15%), April (60%), and May (25%).
  - 15% of March: 0.15 × 350,000 = 52,500
  - 60% of April: 0.60 × 390,000 = 234,000
  - 25% of May: 0.25 × 590,000 = 147,500
  - Total May collections: 52,500 + 234,000 + 147,500 = 434,000
- June cash collections come from: April (15%), May (60%), and June (25%).
  - 15% of April: 0.15 × 390,000 = 58,500
  - 60% of May: 0.60 × 590,000 = 354,000
  - 25% of June: 0.25 × 230,000 = 57,500
  - Total June collections: 58,500 + 354,000 + 57,500 = 470,000

Thus, the Schedule of Expected Cash Collections by month is:
- April: 355,500
- May: 434,000
- June: 470,000
- Total: 1,259,500

Now the accounts receivable balance on June 30: This is the balance of amounts not yet collected as of 6/30. Consider what remains unpaid after June; from each month, the portions not yet collected are:
- From June sales: 60% (July) + 15% (August) = 75% of June sales remain unpaid as of 6/30. 0.75 × 230,000 = 172,500
- From May sales: 15% is collected in July, so 0.15 × 590,000 = 88,500 remains unpaid as of 6/30
- From April sales: 15% is collected in June, so nothing remains from April beyond June (0.15 × 390,000 = 58,500 was collected in June), but that 15% due in June is included in the 6/30 AR calculation; there is no further amount from April after June
However, these February and March amounts have all been collected by or before June, so they do not contribute to the 6/30 AR.
Add the remaining portions due from April and May that are still unpaid as of 6/30 and the portion of June not yet collected:
- 15% of April = 0.15 × 390,000 = 58,500 (uncollected in June)
- 15% of May = 0.15 × 590,000 = 88,500 (uncollected in July)
- 75% of June = 172,500 (uncollected in July and August)
Total AR on 6/30 = 58,500 + 88,500 + 172,500 = 319,500

Therefore, the accounts receivable balance on June 30 is 319,500.

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