Question

The Paden Corporation has annual sales of $92 million. The average collection period is 54 days. What is the average investment in accounts receivable as shown on the balance sheet? (Use 365 days per year. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Average accounts receivable

$

Essence of Skunk Fragrances, Ltd., sells 7,300 units of its perfume collection each year at a price per unit of $630. All sales are on credit with terms of 2/10, net 90. The discount is taken by 40 percent of the customers.

  

Calculate the average collection period. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Average collection period

days

     

What is the receivables turnover? (Use 365 days a year. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

   

Receivables turnover

times

What is the amount of the company’s average receivables? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Average receivables

$

Answer 1

1). Average Collection Period = 365 / [Net Credit Sales / Average Accounts Receivables]

54 = 365 / [$92 million / Average Accounts Receivables]

$92 million / Average Accounts Receivables = 365 / 54

Average Accounts Receivables = $92,000,000 / 6.76 = $13,610,958.90

2-a). Total Credit Sales = 7,300 * $630 = $4,599,000

Percentage of customers not receiving discounts =100% - 40%= 60%

Average collection period = (40% * 10) + (60% * 90) = 4 + 54 = 58 days

2-b). Receivable Turnover = 365 / Average Collection Period = 365/58 = 6.293

2-c). Average Receivables = Sales / Receivable Turnover = $4,599,000 / 6.293 = $730,800