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McGriff Dog Food Company normally takes 20 days to pay for average daily credit purchases of...

McGriff Dog Food Company normally takes 20 days to pay for average daily credit purchases of $9,000. Its average daily sales are $10,000 and it collects accounts in 25 days.

a. What is its net credit position?

Net credit position $

b. If the firm extends its average payment period from 20 days to 32 days (and all else remains the same), what is the firm’s new net credit position? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations.)

New net credit position $

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Answer #1

a.first let us know accounts receivable and accounts payable.

accounts receivable = average daily sales * number of days

=>$10,000*25 days

=>$250,000.

accounts payable = average daily credit purchases *average payment period

=>$9,000*20

=>$180,000.

net credit position =accounts receivable - accounts payable

net credit position = $250,000-180,000

=>$70,000.

b.new accounts payable position = $9,000*32 days

=>$288,000.

net credit position = $250,000 - 288,000

=>($38,000)

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