Springer Products wishes to borrow $90,000 from a local bank using its accounts receivable to secure the loan. The bank's policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customer's average payment period. Springer's accounts receivable, their average ages, and the average payment period for each customer are shown in the following table: Customer Accounts Receivable Average age of account Average payment period of customer A $11,000 42 days 50 days B $25,000 70 days 65 days C $10,000 48 days 45 days D $28,000 55 days 50 days E $14,000 50 days 60 days F $19,000 21 days 35 days G $30,000 10 days 30 days H $16,000 25 days 40 days . The company extends terms of net 30 days. a. Calculate the dollar amount of acceptable accounts receivable collateral held by Springer Products. b. The bank reduces collateral by 15% for returns and allowances. What is the level of acceptable collateral under this condition? c. The bank will advance 85% against the firm's acceptable collateral (after adjusting for returns and allowances). What amount can Springer borrow against these accounts?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 26Q: A customer was unable to pay the accounts receivable on time in the amount of $34,000. The customer...

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Springer Products wishes to borrow $90,000 from a local bank using its accounts receivable to secure the loan. The bank's policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customer's average payment period. Springer's accounts receivable, their average ages, and the average payment period for each customer are shown in the following table:

Customer	Accounts Receivable	Average age of account		Average payment period of customer
A	$11,000		42 days		50 days
B	$25,000		70 days		65 days
C	$10,000		48 days		45 days
D	$28,000		55 days		50 days
E	$14,000		50 days		60 days
F	$19,000		21 days		35 days
G	$30,000		10 days		30 days
H	$16,000		25 days		40 days

The company extends terms of net 30 days.

a. Calculate the dollar amount of acceptable accounts receivable collateral held by Springer Products.

b. The bank reduces collateral by 15% for returns and allowances. What is the level of acceptable collateral under this condition?

c. The bank will advance 85% against the firm's acceptable collateral (after adjusting for returns and allowances). What amount can Springer borrow against these accounts?

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