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 plannito 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 usedecrease 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

Increased sales:New sales: $604,800 (12% increase)New accounts receivable:Current: $90,000 (60…

Answered: Annual credit sales of T Corporations…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Jeremy Flores Club has annual revenue of EUR 7 million and all sales are on account. Good credit and collection performance in the club industry result in a 30-day ACP (Average Collection Period). Assume a year has 365 days. Determine the maximum receivables balance the club can tolerate and still receive a good rating for credit and collections. If the Jeremy Flores Club is currently collecting receivables in 35 days, by how much must the receivable balance be reduced.
Last year, the sales of OSP Inc. Amounted to R5 million and its most recent statement of financial position revealed trade receivables of R822 000. All sales were on 30 days’ credit to customers. In order to encourage customers to pay in time, the management accountant of OSR Inc has proposed introducing an early settlement discount of 1% for payment within 30 days, while increasing its normal credit period to 45 days. It is expected that, on average, 60% of customers will take the discount and pay within 30 days. 30% of the customers will pay after 45 days, and the rest of the customers will not change their current paying behaviour, OSP Inc. Is charge interest of 12% per annum on its overdraft facility Required: Determine the net benefit (cost) of the proposed changes in trade receivables policy A. Net cost of approximately R7 000 B. Net benefit of approximately R 13000 C. Net cost of approximately R 13 000 D. Net benefit of approximately R 7 000
Aggarwal Inc. buys on terms of 2/10, net 30, and it always pays on the 30th day. The CFO calculates that the average amount of costly trade credit carried is $350,000. What is the firm's average accounts payable balance? Assume a 365-day year. Please explain process and show calculations.
The finance Director of your company is concerned about the lax management of the company’s trade receivables. The trade terms of the company require settlement within 30 days, but its customers take an average of 60 days to pay their bills. In addition, out of total credit sales of K20million per year, the company suffers bad debts of K200,000 per year. The company finances working capital needs with an overdraft at a rate of 8% per year. You have been asked to review the following options. Option 1: Offering a discount of 1% for payment within 30 days. It is expected that 35% of customers will take the discount, while the average time taken to pay by the remaining customers will remain unchanged. As a result of the policy change, bad debts would fall by K60,000 per year and administration costs by K20,000 per year Option 2: The debt administration and credit control of the company could be taken over by a factoring company. The annual fee charged by the factor would be 1.75% of…
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Receivables amount to P150,000. Receivable turnover is 10x and inventory is maintained at a level equal to 15 days’ sales. Selling price per unit is P100 and has gross profit ratio of 40%. A proposal has been made to change the term credit to n/60 to result to an increase in sales volume by one-third or by 5,000 units. Under this proposal, bad debts losses are estimated at 1% to 3% of sales but inventory turnover shall remain the same. Required: (a) How much is the increased accounts receivables? (b) How much is the increased inventory? (c) Compute for the increased operating income.
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Axis Wells and Excavation (AWE) currently generates $198,000 in annual credit sales. AWE sells on terms of net 50, and its accounts receivable balance averages $11,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to $189,000, and accounts receivable will average $12,600. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy. Assume there are 360 days in a year. Round your answers to the nearest whole number. DSOExisting: days DSONew: days
Ruth Company currently has $1,000,000 in accounts receivable. Its average collection period is is 50 days. Assume a 365-day year. The company wants to reduce its average collection period to the industry average of 32 days by pressuring more of its customers to pay their bills on time. The company's CFO estimates that if this policy is adopted the company's average sales will fall by 10 percent. Assuming that the company adopts this change and succeeds in reducing its DSo to 32 days and does lose 10 percent of its sales, what will be the level of accounts receivable following the change? this is a bonus question Select one: a. $900,000 b. $676,667 c. $776,000 d. $576,000 e. $976,667 III
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nider Industries sells on terms of 2/10, net 25. Total sales for the year are $600,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 30 days after their purchases. Assume a 365-day year. What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the nearest whole number. 24 days What is the average amount of receivables? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What would happen to average receivables if Snider toughened its collection policy with the result that all non-discount customers paid on the 25th day? Do not round intermediate calculations. Round your answer to the nearest dollar.
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