wonder dog leash company is examining their accounts receivable patterns. wonder
ID: 2675082 • Letter: W
Question
wonder dog leash company is examining their accounts receivable patterns. wonder's customers are offered terms of 1/10 net 30. of their receivables $150,000 is current, $75000 is 1 month overdue, $30000 is two months overdue, and $20000 is over two months overdue.a. what proportion of wonder's customers pay their bills on time?
b. what is the effective cost of wonder's terms of trade credit?
c. what might happen to their receivables balance if they changed their terms to 1/15 net 30? to 2/10 net 30?
Explanation / Answer
Total AR = 150,000 + 75000+30000+20000 = 275,000 1/10 net 30 means disc of 1% if paid within 10 days else full payment within 30 days So Current AR of 150,000 is that whichis paid within 30 days a. So prop of cust who pay in time = 150,000/275000 = 55% b. what is the effective cost of wonder's terms of trade credit? EC = [%DIsc/(100-%Disc)]*(365/(Credit period - disc days)) = (1%/99%)*(365/(30-10)) = 18.43% c. what might happen to their receivables balance if they changed their terms to 1/15 net 30? 1/15 net 30 means disc of 1% if paid within 15 days else full payment within 30 days So Current AR balance will reduce as discounted period is now 15 days to 2/10 net 30? 2/10 net 30 means disc of 2% if paid within 10 days else full payment within 30 days So Current AR balance will increase as discounted is double for early payment
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