Question

Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 1/15, net 30. Based on experience, 55 percent of all customers will take the discount.

  

a.	What is the average collection period for the company? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 deceimal places, e.g., 32.16.)
b.	If the company sells 1,410 forecasts every month at a price of $1,190 each, what is its average balance sheet amount in accounts receivable? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Marshall, Inc., has weekly credit sales of $18,800 and the average collection period is 51 days. The cost of production is 75 percent of the selling price. What is the average accounts receivable figure? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

1) a. Average collection period = (% of accounts taking discount * Discount period) + (% of accounts not taking the discount * Days’ until full payment is required)

Average collection period = (0.55 * 15 days) + (0.45 * 30 days)

Average collection period = 21.75 days

b. Average balance = 1,410 * $1,190 * 12 * (21.75/365)

Average balance = $1,199,813.42

2) Daily sales = $18,800 / 7 = $2,685.71429

Average accounts receivable = $2,685.71429 * 51

Average accounts receivable = $136,971.43