4. Problem 21-06 Problem 21-6 Receivables Investment McDowell Industries sells o

Question

4. Problem 21-06 Problem 21-6 Receivables Investment McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $1,339,000. Thirty percent of the customers pay on the 10th day and take discounts; the other 70% pay, on average, 42 days after their purchases. Assume 365 days in year for your calculations. a. What is the days sales outstanding? Round your answer to one decimal place. days b. What is the average amount of receivables? Round your answer to the nearest dollar. s c. What would happen to average receivables if McDowell toughened up on its collection policy with the result that all non-discount customers paid on the 30th day? Round your answer to the nearest dollar. The average receivables would be equal Attempts:

Explanation / Answer

a) Days Sale Outstanding = 30%*10 + 70%*42

Days Sale Outstanding = 32.4 Days

b) Average Recievable would be = Days Sale Outstanding /365 * Total Credit Sale

Average Amount of Recievable = 32.4/365 * 1339000

Average Amount of Recievable = $ 118,859

c) Change in Days Sale Outstanding = 30%*10 + 70%*30

Change in Days Sale Outstanding = 24

Average Recievable would be = Days Sale Outstanding /365 * Total Credit Sale

Average Recievable would be = 24/365 * 1339000

Average Recievable would be = $ 88,044

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