16-6 Receivables Investment Snider Industries sells on terms of 2/10, net 45. To

Question

16-6 Receivables Investment

Snider Industries sells on terms of 2/10, net 45. Total sales for the year are $1,500,000. Thirty percent of customers pay on the 10th day and take discounts, the other 70% pay on average, 50 days after their purchasers.

a. What is the days sales outstanding?---Answer is DSO = 38 days. Show all work and formulas to support answer

b. What is the average amount of receivables?--Answer is AR = $156,164 show all work and formulas to support answer

c. What would happen to average recievables if Snider toughened its collection policy with the results that all nondiscount customers paid on the 45th day?--Answer is AR = $141,781-show all work and formulas to support answer

Explanation / Answer

a) Days sales Outstanding

={30%*10 days +70%*50 Days}

= 3days+35days

= 38days

b) Average Receivables

= {1,500,000*30%*10days/365days) +{1,500,000*70%*50days/365days)

= $156,164

c) Average receivables in case Snider toughened the collection policy to 45 days

= {1,500,000*30%*10days/365days) +{1,500,000*70%*45days/365days)

= $141,781.

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