FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:Annual credit sales of T Corporations are $540,000, having credit terms of net 60 days. 60 days is the average collection period for the company. The management of the company is planni
to make changes in credit terms and adopt credit terms of 3/25, net 60. It is expected that all customers would be paying on the last day of discount period. Management decided to use
decrease in account receivable to pay off bank loan which costs company 12%. Also, the management forecasted that the new policy would increase sales by 12%,
Assume that the company earns 25% on sales before any discount, calculate the net change in income if the new credit terms are adopted. (Consider 1 year = 360 days)
$5,742
$3.816
$4,596
$2.674
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