Question

Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 1/30, net 40. Based on experience, 65 percent of all customers will take the discount.

a. What is the average collection period? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Average collection period             days

b. If the company sells 1,350 forecasts every month at a price of $2,450 each, what is its average balance sheet amount in accounts receivable? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Average accounts receivable            $

Answer 1

(a)-Average collection period

Average collection period = [Number of days in discount period x percent of the customers pay] + [Non-discount period x percent of the customers pay]

= [30 Days x 0.65] + [40 Days x 0.35]

= 20 Days + 14 Days

= 34 Days

“Average collection period = 34 Days

(b)-Average accounts receivable

Annual Sales = Monthly sales units x Selling price per unit x 12 months

= 1,350 x $2,450 x 12 Months

= $3,96,90,000

Therefore, the Average accounts receivable = Annual sales x (Average collection period / 365 Days)

= $396,90,000 x (34/365)

= $3,697,150.68

“Average accounts receivable would be $3,697,150.68”