Question

Leyton Lumber Company has sales of $12 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $1.8 million. Assume 365 days in year for your calculations.

1. What is Leyton's DSO? Round your answer to two decimal places.
   days
2. 
   
3. What would DSO be if all customers paid on time? Round your answer to two decimal places.
   days
4. 
   
5. How much capital would be released if Leyton could take actions that led to on-time payments? Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

Answer 1

Answer a.

Sales = $12,000,000
Accounts Receivable = $1,800,000

Days Sales Outstanding = 365 * Accounts Receivable / Sales
Days Sales Outstanding = 365 * $1,800,000 / $12,000,000
Days Sales Outstanding = 54.75 days

Answer b.

If all the customers pay on time, then days sales outstanding will be 30 days.

Answer c.

Days Sales Outstanding = 365 * Accounts Receivable / Sales
30 = 365 * Accounts Receivable / $12,000,000
Accounts Receivable = $986,301.37

Capital Released = Old Accounts Receivable - New Accounts Receivable
Capital Released = $1,800,000 - $986,301.37
Capital Released = $813,698.63