Route Canal Shipping Company has the following schedule for aging of accounts re
ID: 2743147 • Letter: R
Question
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
Age of Receivables
April 30, 2010
(1)
(2)
(3)
(4)
Month of Sales
Age of Account
Amounts
Percent of Amount Due
April.................................
0–30
$ 105,000
____
March...............................
31–60
60,000
____
February...........................
61–90
90,000
____
January.............................
91–120
45,000
____
Total receivables............
$ 300,000
100%
a. Fill in column (4) for each month.
b. If the firm had $1,440,000 in credit sales over the four-month period, compute the average collection period. Average daily sales should be based on a 120-day period.
c. If the firm likes to see its bills collected in 30 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?
Age of Receivables
April 30, 2010
(1)
(2)
(3)
(4)
Month of Sales
Age of Account
Amounts
Percent of Amount Due
April.................................
0–30
$ 105,000
____
March...............................
31–60
60,000
____
February...........................
61–90
90,000
____
January.............................
91–120
45,000
____
Total receivables............
$ 300,000
100%
Explanation / Answer
Solution :
a.Age of Receivables
April 30, 2010
-1
-2
-3
-4
Percent of Amount Due (Amount/total receivable)
Month of Sales
Age of Account
Amounts
April.................................
0–30
105,000
35%
March...............................
31–60
60,000
20%
February...........................
61–90
90,000
30%
January.............................
91–120
45,000
15%
Total receivables............
300,000
100%
b.average collection period= 120 / avearge receivable turnover = (120/4.8)
25 days
average receivable turnover = net credit sales / average receivable
(1440000/300000)
4.8
c. NO because aveage collection period is 25 days
d NO because 65 % of amount are due for more than 30 days ((300000-105000)/300000)
e. Amount of credit sales that account receivable represent and its bifercation based on time frame as mentioned.
a.Age of Receivables
April 30, 2010
-1
-2
-3
-4
Percent of Amount Due (Amount/total receivable)
Month of Sales
Age of Account
Amounts
April.................................
0–30
105,000
35%
March...............................
31–60
60,000
20%
February...........................
61–90
90,000
30%
January.............................
91–120
45,000
15%
Total receivables............
300,000
100%
b.average collection period= 120 / avearge receivable turnover = (120/4.8)
25 days
average receivable turnover = net credit sales / average receivable
(1440000/300000)
4.8
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