Route Canal Shipping Company has the following schedule for aging of accounts re
ID: 2448884 • Letter: R
Question
Route Canal Shipping Company has the following schedule for aging of accounts receivable: Age of Receivable
( 1) ( 2 ) ( 3 ) ( 4 ) Month of Sales Age of Account Amounts % of amount due
April 0-30 $131,250
March 31-60 93,750
February 61-90 112,500
January 91-120 37,500
Total receivables $375,000 100%
a. fill in the column (4) for each month
b. If the firm had $1,500,000 in credit sales over the four-month period, compute the average collection period. Avg. daily sales should be based on a 120-day period.
c. If the firm likes to see its bills collected in 35 days, should it be satisfied with the average collection period?
d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied?
e. what additional information does the aging schedule bring to the company that the average collection period may not show?
Explanation / Answer
Route Canal Shipping Company has the following schedule for the aging of its accounts receivable: AGE OF RECEIVABLES (1) (2) (3) (4) Month of Sales Age of Account Amounts Percent of Amount Due April 0-30 $131,250 - March 31-60 93,750 - February 61-90 112,500 - January 91-120 37,500 - Total receivables $375,000 100% Solutions: a. fill in the column (4) for each month AGE OF RECEIVABLES (1) (2) (3) (4) Month of Sales Age of Account Amounts Percent of Amount Due April 0-30 $131,250 35% March 31-60 93,750 20% February 61-90 112,500 30% January 91-120 37,500 15% Total receivables $375,000 100% b. If the firm had $1,500,000 in credit sales over the four-month period, compute the average collection period. Avg. daily sales should be based on a 120-day period. Credit Sales $1,500,000 120 Day period Daily Sales = 1500000/120 day $12,500 Average Collection period Average Collection period = Days * AR Credit Sales Where: Days = Total amount of days in period = 120 days AR = Average amount of accounts receivables = $375,000 Credit Sales = Total amount of net credit sales during period = $1,500,000 Average Collection period = 120*$375,000 = $45,000,000 $45,00,0000/$1,500,000 30 Days Average Collection period = 30 days c. If the firm likes to see its bills collected in 35 days, should it be satisfied with the average collection period? Yes, the average collection of 30 days is determined in part b. , is less than 35 days. d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied? No. The aging schedule provides additional insight that 65 percent of the accounts receivable are over 3 e. what additional information does the aging schedule bring to the company that the average collection period may not show? It goes beyond showing how many days of credit sales accounts receivables represent, to indicate the distribution of accounts receivable between various time frames.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.