Lamar Lumber Company has sales of $9 million per year, all on credit terms calli

Question

Lamar Lumber Company has sales of $9 million per year, all on credit terms calling for payment within 30 days; and its accounts receivable are $1.8 million. Assume 365 days in year for your calculations.

What is Lamar's DSO? Round your answer to two decimal places

? Days

What would DSO be if all the customers paid on time? Round your answer to two decimal points,

? Days

How much capital would be released if Lamar could take actions led to on-time payments? Round your answer to the nearest cent.

$ ?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Accounts Receivables Turnover Ratio = Net Credit Sales/Accounts Receivables = 9000000/1800000 = 5 times

DSO = 365/Accounts Receivables Turnover Ratio = 365/5 = 73 Days

Part B:

DSO = 30 Days (since all customers have paid on time)

Part C:

Firm's Accouunts Recievables if Customers Paid on Time = Approved Credit Period*Sales/365 = 30*9000000/365 = 739726.03

Capital Released = 1800000 - 739726.03 = 1060273.97 or 1060274

Thanks.

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