Question

04. Enu-01-Clldpter Problems- Analysis of Financial Statements x ck to Assignment Attempts: Keep the Highest: /1 12. Problem 4.20 Click here to read the eBook: Asset Management Ratios Problem Walk-Through DSO AND ACCOUNTS RECEIVABLE Ingraham Inc. currently has $675,000 in accounts receivable, and its days sales outstanding (DSO) is 71 days. It wants to reduce its DSO to 25 days by pressuring more of its castomers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 20 % . What will be the level of accounts receivable following the change? Assume a 365-day year. Do not round intermediate calculations. Round your answer to the nearest cent $ Grade It Now Save& Continue Continue without saving NOV

Answer 1

Answer:

Days Sales Outstanding = Accounts Receivable / Annual Sales * 365 days
71 days = $675,000 / Annual Sales *365 days
Annual Sales = $675,000 / 71 days * 365 days
Annual Sales = $3,470,070.42

New Annual Sales = Annual Sales – Annual Sales * 20%
New Annual Sales = $3,470,070.42 - $3,470,070.42 * 20%
New Annual Sales = $3,470,070.42 - $694,014.08
New Annual Sales = $2,776,056.34

New Days Sales Outstanding = 71 days – 25 days
New Days Sales Outstanding= 46 days

Accounts Receivable = New Days Sales Outstanding * New Annual Sales / 365 days
Accounts Receivable = 46 days * $2,776,056.34 / 365
Accounts Receivable = $349,859.16