The conditions of the credit sale, including cash discounts and due dates, are i

Question

The conditions of the credit sale, including cash discounts and due dates, are indicated by the company's Consider the case of Tun Ash Inc.: Tun Ash Inc. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Tun Ash Inc. sells to its customers on credit terms of 3/10, net 30. If a customer bought $175,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Tun Ash Inc. get from the customer? O $169,750 O $175,000 $183,750 O $144,375 If the customer paid off the account after 15 days, Tun Ash Inc. would receive Approximately 25% of Tun Ash Inc.'s customers take advantage of the discount and pay on the 10th day. The remaining 75% take an average of 35 days to pay off their accounts. What is Tun Ash Inc.'s days sales outstanding (DSO), or the average collection period? O 28.8 days 30.2 days O 27.4 days O 25.9 days

Explanation / Answer

1) Thw conditions of credit sale, including cash discount and due dates are indicates in the company's credit terms.

2) 3/10 net 30 means that the customers who pay within 10 days will get a 3% discount. Otherwise, the whole amount is payable within 30 days.

3) If the customer pays within 8 days he/ she will get a cash discount of 3% -

Amount received = $175000 - 3% x $175000 = $169750

If the customer paid after 15 days, Tun Ash Inc will receive the whole amount of $175000.

4) Average days = 0.25 x 10 days + 0.75 x 35 days = 28.75 or 28.8

5) DSO = (Average receivables / sales) x 365 = ($47.6 million / $391.1 million) x 365 = 44.4 days

6) DSO = (Average receivables / sales) x 365

or, 54.1 = (Average receivables / 391,100,000) x 365

or, Average receivables = $57,968,520.5479 or $57,968,529 (rounding off difference)

7) New Sales = $391,100,000 - 3% x $391,100,000 = $379,367,000

DSO = 30

Or, (Average receivables / $379,367,000) x 365 = 30

Or, Average receivables = $31,180,849.315 or $31,180,860 (rounding off differencce)

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