Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit te
ID: 2635231 • Letter: K
Question
Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 4.0/15, net 30. Based on experience, 40 percent of all customers will take the discount.
If Kyoto Joe sells 1,260 forecasts every month at a price of $1,950 each, what is its average balance sheet amount in accounts receivable? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
a. What is the average collection period for Kyoto Joe? (Use 365 days a year.)
Explanation / Answer
4.0/15, net 30. means the person taking the discount of 4% will be paying within 15days and rest will pay in 30 days.
a. Average collection period = .40(15 days) + .60(30 days) = 6 +18 = 24 days
b. Average balance = 1,260($1,950)(24)(12/365) =$1,938,673.97
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