Question

Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 3/25, net 50. Based on experience, 80 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 1,340 forecasts every month at a price of $2,440 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

Answer a.

Credit term is 3/25, net 50 which allows a discount period of 3 days and credit period of 50 days.

80% of all customers will take the discount and pay within 3 days and remaining 20% of customers will pay within 50 days.

Average Collection Period = 80% * 3 + 20% * 50
Average Collection Period = 12.40 days

Answer b.

Monthly Sales Unit = 1,340 units
Selling Price per unit = $2,440

Annual Sales = 12 * Monthly Sales Unit * Selling Price per unit
Annual Sales = 12 * 1,340 * $2,440
Annual Sales = $39,235,200

Average Collection Period = 365 * Average Accounts Receivable / Annual Sales
12.40 = 365 * Average Accounts Receivable / $39,235,200
Average Accounts Receivable = $1,332,921.86