6 Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credi

Question

6

Miyagi Data, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 3/20, net 40. Based on experience, 70 percent of all customers will take the discount. (Enter your answer as directed, but do not round intermediate calculations.) Required: What is the average collection period? Average collection period If the company sells 1, 220 forecasts every month at a price of $2,320 each, what is its average balance sheet amount in accounts receivable? (Enter your answer in dollars, not millions of dollars (e.g., 1, 234,567). Round your answer to 2 decimal places (e.g., 32.16).) Average accounts receivable

Explanation / Answer

a)

The average collection period = % of accounts taking the discount time x discount period + % of accounts not taking the discount times x days until full payment is required

= (0.70 x 20 )+ (0.30 x 40) = 14 + 12 = 26 days

Average collection period is : 26 days

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b)

The average daily balance = 1,220 x $ 2,320 x12x(26/365)

= 2,830,400 x 12x (26/365)

= 33,964,800 x (26/365)

= 33,964,800 x 0.071232

=$ 2,419,410.41

Average account receivable is: $ 2,419,410.41

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