Receivables Investment
Snider Industries sells on terms of 2/10, net 45. Total sales for the year are $1,100,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 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 45th day? Do not round intermediate calculations. Round your answer to the nearest dollar.
$a. The days sales outstanding is computed as shown below:
= 30% x 10 days + 70% x 50 days
= 38 days
b. Average amount of receivable is computed as shown below:
= 38 days x Sales / 365
= 38 x $ 1,100,000 / 365
= $ 114,521 Approximately
c. The amount is computed as shown below:
New DSO is computed as follows:
= 30% x 10 days + 70% x 45 days
= 34.5 days
New accounts receivables is computed as follows:
= New DSO x Sales / 365
= 34.5 days x $ 1,100,000 / 365
= $ 103,973 Approximately
So, the change in accounts receivables is computed as follows:
= $ 114,521 - $ 103,973
= $ 10,548
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