Question

Maddox Resources has credit sales of $197,000 yearly with credit terms of net 30 days, which is also the average collection period. Maddox does not offer a discount for early payment, so its customers take the full 30 days to pay. (Use 365 days in a year.) 

 

a-1. What is the average receivables balance? (Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

 

Accounts receivable balance           $ 

 

a-2. What is the receivables turnover? (Round the final answer to 2 decimal places.)

 

Receivables turnover             x

 

b. If Maddox offered a 3 percent discount for payment in 10 days and every customer took advantage of the new terms, what would the new average receivables balance be? Use the full sales of $197,000 for your calculation of receivables. (Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

 

New receivable balance           $ 

 

c-1. If Maddox reduces its bank loans, which cost 15 percent, by the cash generated from reduced receivables, what will be the net gain or loss to the firm? Use the full sales of $197,000 for your calculation of receivables. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to nearest whole dollar. Omit $ sign in your response.)

 

Net Change           $ 

 

c-2. Should Maddox Resources offer the discount?

 

• Yes

• No

 

d-1. Assume the new trade terms of 3/10, net 30 will increase sales by 24 percent because the discount makes Maddox price competitive. If Maddox earns 15 percent on sales before discounts, what will be the Net change in income? (Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

 

Net change in income           $ 

 

d-2. Should Maddox Resources offer the discount?

 

• Yes

• No

Answer 1

Refer to the below images for the above mentioned questions, in a detailed way of solution with calculations and explanations.

Men @ what is the average recevable balance ? Requirement sales 365 days a average daily sales $ 197,000 a $539.7260 365 Accounts Receivable balance = $539.7260 x 30 days = $ 16192 — — — @ 2 What is the receivables turnover ? - 365 Accounts Recavable turnover Average collection period 365 days 30 days 12.17 times - (or) Turnover 197000 = Sales Accounts receivable - $ 16192 - 12.17 times ment 6 what would be the new average receivables balance ? $539.7260 x to days = $5397 new receivable balance.

@ : what will be the net gain (8) loss to the firm ? Regjoškemmt @ Realy ★ Funds freed by discount * Savings on loan = ond receivables a new receivables - 9 16192 - $ 5397 - $ 10795 = 151. * $107937 = $1619.25 a3%X $ 197000 = 4(5910) $429075 from discount = $ (4291) +) Discount on Sales wer change in income randed - - - - a @ should Maddox Resources offer the discount ? the not No. from the since does income offset Don't offer the discount the reduced bank loans, loss on the discount

. What will What will be the wet change in income? Requrement de New soles = change in Sales - 9 197000 x 124 to $244220 - 2 197000 $244280 9 47280 sales por day = $244280 = $669 •2603 365 days Average receivables & $669.2603 x10 days = +6693 (rounded) * Intrease profit on new sales & 15%* 47980 (change in sales) & $7092 = 31-7244280 = $(7328) Discount cost ct) Interest Savings ($ 16192 (port as) - $6693) y 15t. $1425 Net change in income - $ 1189 d ol. Should Maddox the discount ? Resources after Yes, because total profit offer the discount increases.

Answer 2

part d 1 wrong