Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit te
ID: 2781679 • Letter: K
Question
Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 2/10, net 30. Based on experience, 65 percent of all customers will take the discount. a. What is the average collection period for Kyoto Joe? (Use 365 days a year.) Average collection period days b. If Kyoto Joe sells 1,300 forecasts every month at a price of $1,750 each, what is its average balance sheet amount in accounts receivable? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16) Average balanceExplanation / Answer
a. Credit terms = 2/10 net 30 means if the customer repays the credit within 10 days, then he gets a discount of 2% else he has to pay within 30 days.
Percentage of customers availing the discount = 65%
Average collection period = 65% * (10 days) + 35% * (30 days) = 17 days
b. Annual sales = 1300 * $1750 * 12 = $ 2,73,00,000 (since there are 12 months in a year)
Average daily balance = (Annual sales x Average collection period) / 365
= (1300 * $1750 * 12 * 17)/365 = $12,71,506.85
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