Kecp the Highest: 3/ Attempts: 3 8. Accounts receivable Effective credit managem
ID: 1171035 • Letter: K
Question
Kecp the Highest: 3/ Attempts: 3 8. Accounts receivable Effective credit management involves establishing credit standards for extending credit to customers, determining the Aa Aa company's terms of credit, and setting up procedures for invoicing and collecting past-due accounts. The following statement refers to a credit management policy. Select the best term to complete the sentence. The minimum financial strength a customer must have to be granted credit is indicated by the company'S Consider the case of Sombra Corp.: Sombra Corp. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Sombra Corp. sells to its customers on credit terms of 1/10, net 30. If a customer bought$20D,ODD worth of goods and paid the firm cash eight days after the sale, how much cash would Sombra Corp. get from the customer? O $198,000 O $170,000 $175,000 O $160,00o If the customer paid off the account after 15 days, Sombra Corp. would receive Approximately 25% of Sombra Corp.'s customers take advantage of the discount and pay on the 10th day. The remaining 75% take an average of 35 days to pay off their accounts. What is Sombra Corp.'s days sales outstanding DSO) ), or the average collection period? O 30.2 days O 25.9 days O 28.8 days O 31.7 daysExplanation / Answer
Solution: 1st Credit standards Notes: The minimum financial strength a customer must have to be granted credit is indicated by the company's Credit Standards 2nd Cash from the customer before 10th day $198,000 Working Notes: since, sales were done on terms of 1/10 , net 30 Cash is received within 10days of sales , that is on 8th day , the customer will be eligible for discount of 1% Cash from the customer = sales ( 1-discount rate) =$200,000 x (1-0.01) =$200,000 x 0.99 =$198,000 credit terms of 1/10, net 30., I f customer pays within first 10 days he will get 1 % discount on sales amount if not then he have to pay with in 30 days of sales full payment. 3rd Cash from the customer after 15 days $200,000 Notes: NO discount will be given , as payment is received beyond 10 days of sales, full payment will be received 4th days sales outstanding (DSO) 28.8 days Working Notes: Days sales outstanding (DSO) = 25% x 10 days + 75% x 35 days =2.5 +26.25 =28.75 days =28.8 days Please feel free to ask if anything about above solution in comment section of the question.
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