Chapter 16 Working Capital Managemernt Graded Assignment | Read Chapter 16| Back
ID: 2619592 • Letter: C
Question
Chapter 16 Working Capital Managemernt Graded Assignment | Read Chapter 16| Back to Due Sunday 07.01.18 at 1145 Attempts: Keep the Highest: 14 3. Accounts receivable Aa Aa Effective credit management involves establishing credit standards for extending credit to customers, determining the company's terms of credit, and setting up procedures for invoicing and collecting past-due accounts. The following statement refers to a credit management policy. Select the best term to complete the sentence. How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the company's Consider the case of Wok Bar Co.: Wok Bar Co.'s CFO has decided to take a closer look at the company's credit policy. Wok Bar Co. has annual sales $402.8 million, and it currently has an accounts receiv firm's credit policy is to determine its days sales outstanding (Dso). of able balance of $47.6 milion. The first step in analyzing the Based on this information, Wok Bar Co.'s DSo is calculations.) (Note: Use 365 days as the length of a year in all The average DSO for Wok Bar Co.'s industry is 53.4 days. Assuming that its sales stayed the same, what would be Wok Bar Co.'s receivables balance if it maintained the industry average DSO? Wok Bar Co.'s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFo believes that if the company were to better enforce its credit policy, it would reduce its DSO to 30 days; however this win cause wok Bar Co. to lose S% of its sales revenue. what would wok Bar Co.'s expected acounts receivables balance be if it decides to tighten its credit policy? O $31,4S1,520 O $34,596,672 O $29,878,944 O $37,741,824 MacBooExplanation / Answer
Answer a.
How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the company’s collection policy.
Answer b.
DSO = 365 * Accounts Receivable / Annual Sales
DSO = 365 * $47.6 million / $402.8 million
DSO = 43.1 days
Based on this information, Wok Bar Co.’s is 43.1 days.
Answer c.
DSO = 365 * Accounts Receivable / Annual Sales
53.4 days = 365 * Accounts Receivable / $402.8 million
Accounts Receivable = $58.9 million
Wok Bar Co.’s receivables balance if it maintained the industry average DSO is $58.9 million.
Answer d.
DSO = 30 days
Sales Revenue = $402.8 million * 95%
Sales Revenue = $382.66 million
DSO = 365 * Accounts Receivable / Annual Sales
30.0 days = 365 * Accounts Receivable / $382.66 million
Accounts Receivable = $31,451,520
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