Question

Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 1/10, net 30. Based on experience, 55 percent of all customers will take the discount.

  

a.	What is the average collection period for the company? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 deceimal places, e.g., 32.16.)
b.	If the company sells 1,500 forecasts every month at a price of $1,280 each, what is its average balance sheet amount in accounts receivable? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

A) The calculation of average collection period for the company is shown below:

Average collection period = 10*55% + 30*45% = 19 days

B)The calculation of average balance sheet amount in accounts receivable is shown below:

Average accounts receivable = Budgeted sales units * Sales price per unit * Average collection period * 12 months/365 days

= (1,500 units * $1,280 each * 19 days)*12 months/365

= $1,199,342.47