west.cengagenow.com/ilm/takeAssignment/takeAssignmentMain.do eBook Problem 16-5
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west.cengagenow.com/ilm/takeAssignment/takeAssignmentMain.do eBook Problem 16-5 Receivables investment McDowell Industries sells on terms of 3/10, net 40. Total 64 days after their purchases. Assume 365 days in year for your calculations a. What is the days sales outstanding? Round your answer to two decimal places sales for the year are $1,088,000: 40% of the ast nen pay onthe lath day and take di o ts while the ans en pen on m at days b. What is the average amount of receivables? Round your answer to the nearest cent. c what is the percentage cost of trade credit to oustomers who take the dscount? Round your answer to two decimal places d. What is the percentage cost of trade credit to customers who do not take the discount and pay on Day 64? Round your answers to two decimal places Nominal cost: Effective cost: e. What would happen to McDowel's accounts receivables if McDowell toughened up on its collection policy with the result that all nondiscount customers paid on the 40th day? Round your answers to two decimal places days Average receivables s$ Check My Work (o remaining) Oe Icon Key Problem 16.05 Question S of 10Explanation / Answer
Answer:-
a. what is the days sales outstanding?
Answer;-
.40(10)+).60(64)= 4 + 38.4 =42.4 days
b. what is the average amount of receivable?
Average Amount of receivable = Total sales/365 =$1,088,000/365 =$ 2,980 sales per day
Average receivale = $2980(42.4)= $126,387
C. what is the percentage cost of trade credit if customer atkes disount
Credit Cost = [Percent Discount / (100 – Percent of Discount)] x [365 / (credit period – discount period)
Credit cost =[3/(100-3)] x [365/64-10] = 20.90%
D. what is the percentage cost of trade credit for customers who do not take discount and pay on 64th day?
Discount Percent/100 - Discount percent X 365/Days Credit is outstanding -Discount period = Cost of Not Taking the Discount
3/100-3 x 365/64-10 = 27.09%
E.hat would happen on average receivable if McDowell toughened up on itscollection policy with the result that all nondiscount customers paid on the 40thday?
Answer
0.4(10) + 0.6(40) = 28 days.
$1,088,000/365 = $2,980.82 sales per day.
$2,980.82(28) = $83,463 = Average receivables.
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