strickland Propane\'s CFO has decided to take a closer look at the company\'s cr
ID: 2799385 • Letter: S
Question
strickland Propane's CFO has decided to take a closer look at the company's credit policy. Strickland Propane has annual sales of $379.3 million, and it currently has an accounts receivable balance of $47.1 million. T he first step in alyzing the firm's credit policy is to determine its days sales outstanding (DSo). Based on this information, what is Strickland Propane's DSO? (Use 365 days as the length of a year in all calculations.) O 31.7 days O 49.8 days O 45.3 days O 43.0 days The average DSO for Strickland Propane's industry is 53.9 days. Assuming that its sales stayed the same, what would be Strickland Propane's receivables balance if it maintained the industry average Dso? O $44,809,355 O $56,011,694 O $47,609,940 O $64,413,448 Strickland Propane'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 will cause Strickland Propane to lose 3% of its sales revenue. Determine what Strickland Propane's expected accounts receivables balance would be if it decides to tighten its credit policy. O $27,216,081 O $36,288,108 O $30,240,090 O $25,704,077Explanation / Answer
1 Accounts Receivable Turnover Ratio = Credit Sales / Average Accounts Receivable = 379.3 / 47.1 = 8.05 times Days Sales in Average Receivable = 365 Days / Accounts Receivable Turnover Ratio = 365 / 8.05 = 45.3 days The Correct Answer is 45.3 days 2 Accounts Receivables Balance = Credit Sales * (Days Sales in Average Receivable /365 Days ) = 379.3 * (53.9/365) = $ 56.011694 Million or $ 56011694 The Correct Answer is $ 56011694 3 Annual Sales = 379.3 Million = 379.3 * 1000000 = $ 379300000 Due to reduction in DSO to 30 Days , sales will be reduced to 3% New Sales will be = $ 379300000 * (1.00-0.03) = $ 367921000 Accounts Receivable Turnover Ratio = Credit Sales * (Days Sales in Average Receivable /365 Days ) = $ 367921000 * (30/365) = $ 30240082 or say $ 30240090 The Correct Answer is $ 30240090
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