Question

Route Canal Shipping Company has the following schedule for aging of accounts receivable:  
  

Age of Receivables April 30, 20X1
(1)	(2)	(3)		(4)
Month of Sales	Age of Account	Amounts		Percent of Amount Due
April	0–30	$	176,890	_______
March	31–60		126,350	_______
February	61–90		151,620	_______
January	91–120		50,540	_______
Total receivables		$	505,400	100%

  
a. Calculate the percentage of amount due for each month.
  

    

b. If the firm had $1,596,000 in credit sales over the four-month period, compute the average collection period. Average daily sales should be based on a 120-day period.
  

   

c. If the firm likes to see its bills collected in 43 days, should it be satisfied with the average collection period?
  

	Yes
	No

d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied?
  

	Yes
	No

Answer 1

a)	Age of Receivables
	April 30, 20X1
	-1	-2	-3		-4
	Month of	Age of	Amounts		Percent of
	Sales	Account			Amount Due
	April	0–30	$	176,890	35%
	March	31–60		126,350	25%
	February	61–90		151,620	30%
	January	91–120		50,540	10%
	Total receivables		$	505,400	100%
b)	Average collection period=average account receivable balance/average credit sales per day
	=505400/(1596000/120)
	38	days
c)	Yes
d)	No as there is high % of oustanding beyond 38 days.