Question

Receivables Investment

Snider Industries sells on terms of 2/10, net 25. Total sales for the year are $850,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 30 days after their purchases. Assume a 365-day year.

What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the nearest whole number.

  days

What is the average amount of receivables? Do not round intermediate calculations. Round your answer to the nearest dollar.

$  

What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 25th day? Do not round intermediate calculations. Round your answer to the nearest dollar.

$  

Answer 1

a. Computation of Days Sales Outstanding

Days Sales Outstanding = Percent pay in 10 days * 10 days + Percent pay in 30 days * 30 days

Days Sales Outstanding = 30% * 10 + 70% * 30

Days Sales Outstanding = 24 days

b. Computation of Average Accounts Receivable

Accounts Receviable = DSO * Sales / 365

Accounts Receviable = 24 * 850000 / 365

Accounts Receviable = $55890.41

c. New DSO

Days Sales Outstanding = Percent pay in 10 days * 10 days + Percent pay in 25 days * 25 days

Days Sales Outstanding = 30% * 10 + 70% * 25

Days Sales Outstanding = 20.50 days

New Accounts Receivable = DSO * Sales / 365

New Accounts Receivable = 20.50 * 850000 / 365

New Accounts Receivable = 47739.73

Becausee of tough collection policy Accounts receivable will decrease by $8150.68 (55890.41 - $47739.73)

answered by: anonymous