Essence of Skunk Fragrances, Ltd., sells 6,200 units of its perfume collection e

Question

Essence of Skunk Fragrances, Ltd., sells 6,200 units of its perfume collection each year at a price per unit of $392. All sales are on credit with terms of 1/10, net 50. The discount is taken by 35 percent of the customers. (Enter your answer as directed, but do not round intermediate calculations.)

What is the amount of the company’s accounts receivable? (Round your answer to 2 decimal places (e.g., 32.16).)

What is the amount of the company’s accounts receivable? (Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Solution:

Calculation of Average Collection Period = (10 days x 0.35) + (50 days x 0.65) = 3.5 days + 32.5 days = 36 days

Credit Sales = $6,200 Units x $392 = $2,430,400

Average Accounts Receivables = Credit Sales x Average Collection Period / 365 or 360

If taking 360 days in a year Average Receivables = $2,430,400 x 36 / 360 = $243,040

If taking 365 days in a year Average Receivables = $2,430,400 x 36 / 365 = $239,710.68

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