Which of the following statements ismost correct? *An aging schedule is used to determinewhat portion of customers pay cash andwhat portion buy on credit.If a firm changes its credit terms from 1/20,net 40 days, to 2/10, net 60 days, the impacton sales can't be determined because theincrease in the discount is offset by thelonger net terms, which tends to reducesales.Aging schedules can be constructed fromthe summary data provided in the firm'sfinancial statementsIf a firm's volume of credit sales declinesthen its DSO will also decline.The DSO of a firm with seasonal sales canvary. While the sales per day figure isusually based on the total annual sales, theaccounts receivable balance will be high orlow depending on the season. Which of the following is NOTcommonly regarded as being a creditpolicy variable? *O Collection policy.Cash discounts.Payments deferral period.O Credit period.O Credit standards.

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Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 15PB: Shimmer Products is considering which bad debt estimation method works best for its company. It is...

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Shimmer Products is considering which bad debt estimation method works best for its company. It is deciding between the income statement method, balance sheet method of receivables, and balance sheet aging of receivables method. If it uses the income statement method, bad debt would be estimated at 5.6% of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 13.7% percent of accounts receivable. If it were to use the balance sheet aging of receivables method, it would split its receivables into three categories: 0â€“30 days past due at 5%, 31â€“90 days past due at 21%, and over 90 days past due at 30%. There is currently a zero balance, transferred from the prior years Allowance for Doubtful Accounts. The following information is available from the year-end income statement and balance sheet. There is also additional information regarding the distribution of accounts receivable by age. Prepare the year-end adjusting entry for bad debt, using A. Income statement method B. Balance sheet method of receivables C. Balance sheet aging of receivables method D. Which method should the company choose, and why?
Which of the following best represents a positive product of a lower number of days sales in receivables ratio? A. collection of receivables is quick, and cash can be used for other business expenditures B. collection of receivables is slow, keeping cash secured to receivables C. credit extension is lenient D. the lender only lends to the top 10% of potential creditors
It is typically beneficial for companies to take advantage of early-payment discounts allowed on purchases made on credit. To see why this is the case, determine the effective rate of interest associated with not taking advantage of the early-payment discount for each of the following situations. Assume in each case that payment is made on the 45th day of the billing cycle. Required: 1. What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 2/25, n/45? 2. What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 1/25, n/45? 3. To motivate managers to take early-payment discounts, what is the appropriate accounting treatment for purchase discounts?
d. What is the percentage cost of trade credit to customers who do not take the discountand pay in 70 days?e. What would happen to McEwan’s accounts receivable if it toughened up on its collectionpolicy with the result that all nondiscount customers paid on the 30th day?
Young and Old Corporation (YOC) uses two aging categories to estimate uncollectible accounts. Accounts less than 60 days are considered young and have a 5% uncollectible rate. Accounts more than 60 days are considered old and have a 40% uncollectible rate. Required: If YOC has $118,000 of young accounts and $320,000 of old accounts, how much should be reported in the Allowance for Doubtful Accounts? If YOC’s Allowance for Doubtful Accounts currently has an unadjusted credit balance of $32,000, how much should be credited to the account? If YOC’s Allowance for Doubtful Accounts has an unadjusted debit balance of $4,200, how much should be credited to the account?
1-what is the percentage cost of trade credit to customers who do not take the discount and pay in 40 days? 2-what would happen to McDowell s accounts receivable if it toughened up on its collection policy with the result that all nondiscount customers paid on the 30th day?
Knights Technologies is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 to speed collections. At present 40% of Knights paying customers take the 2% discount. Under the new terms, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who would not take discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of the credit standards; therefore, bad debts losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Knights variable cost ratio is 75%, the interest rate on funds invested in accounts receivable with production and credit sales is 9% and the firms marginal tax rate is 40%. All costs associated with production and credit sales are paid in the day of sales. What is the DSO before and after the change? Calculate the cost of…
Knights Technologies is considering changing its credit terms from 2/15, n/30 to 3/10, n/30 to speed collections. At present 40% of Knights paying customers take the 2% discount. Under the new terms, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who would not take discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of the credit standards; therefore, bad debts losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. Knights variable cost ratio is 75%, the interest rate on funds invested in accounts receivable with production and credit sales is 9% and the firms marginal tax rate is 40%. All costs associated with production and credit sales are paid in the day of sales. What is the DSO before and after the change? Calculate the cost of…
DBA Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in order to speed collections. At present, 40% of Sonata Company‘s customers take the 2% discount. Under the new term, discount customers are expected to rise to 50%. Regardless of the credit terms, half of the customers who do not take the discount are expected to pay on time, whereas the remainder will pay 10 days late. The change does not involve a relaxation of credit standards; therefore bad debt losses are not expected to rise above their present 2% level. However, the more generous cash discount terms are expected to increase sales from P2 million to P2.6 million per year. DBA’s variable cost ratio is 75%, the interest rate on funds invested in accounts receivable is 9 %, and the firm’s income tax rate is 40%. Required: What is the days sales outstanding (DSO) before the change of credit policy? What is the days sales outstanding (DSO) after the change of credit policy? How much is the…
From aging its Accounts Receivable, Marlon De Guzman Company estimates that 18,750 of it's accounts will be uncollectible. At this time, Allowance for Doubtful Accounts has an 8,400 credit balance. The adjusting entry is. A. Debit allowance for doubtful accounts, 18,750; credit accounts receivable, 18,750. B. Debit doubtful accounts expense, 10,350; credit allowance for doubtful accounts, 10,350 C. Debit doubtful accounts expense, 18,750; credit accounts receivable 18,750 D. Debit allowance for doubtful accounts, 10,350; credit doubtful accounts expense, 10,350 (Which one is correct)
A meeting was held at ABC Ltd due to decreased sells. Marketing manager blamed the current policy of 2/15 net 40 as credit terms and told that the strict credit terms are responsible for not been able to achieve target sell of Rs. 30 million in last year and missed by Rs. 5 million. He suggested relaxing the credit terms to 2/ 20 net 60 as credit terms. Finance manager opposed the advice and informed that already average payment period of discount sell is 10 days and their proportion is 40% of total sells. Moreover credit sales average payment is 50 days. With the new policy, he expected that customers availing discount will decrease to 30% and their average payment period will become 15 days. Moreover the payment period of credit sell will shoot up to 75 days. He also said that extended credit is likely to increase bad debts from current 2% to 4%. Variable cost ratio to sell is 60%, Cost of Capital is 12%. Compute average collection period of both policies and evaluate suggested…
BayFish Company currently uses maximum trade credit by not taking discounts on its purchases. Company is planning to borrow from its bank, using notes payable, in order to take trade discounts. The firm wants to determine the effect of this policy change on its net income. The standard industry credit terms offered by all its suppliers are 2/15, net 40 days, and BayFish pays in 40 days. Its net purchases are $10,000 per day, using a 365-day year. The interest rate on the notes payable is 8% percent and the firm’s tax rate is 40 percent. If the firm implements the plan, what is the expected change in BayFish’s net income? (Hint: Use Incremental approach table)

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Which of the following is NOT commonly regarded as being a credit policy variable? * Collection policy. Cash discounts. Payments deferral period. O Credit period. O Credit standards.