Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 9, Problem 5DQ
To determine
Indicate the effect of the change in policy on the receivables turnover and the days’ sales collected.
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To increase its sales, a company decides to increase its credit terms from 15 to 30 days. What effect will this change in policy have on receivables turnover and days' sales uncollected?
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?
Which of the following would best explain an increase in receivables turnover?
The company adopted new credit policies last year and began offering credit to customers with weak credit histories.
Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables.
To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.
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- Tightening Credit Terms Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of 2.5 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to 2,375,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Vinsons variable cost ratio is 85%, and taxes are 40%. If the interest rate on funds invested in receivables is 18%, should the change in credit terms be made?arrow_forwardTonis Tech Shop has total credit sales for the year of 170,000 and estimates that 3% of its credit sales will be uncollectible. Allowance for Doubtful Accounts has a credit balance of 275. Prepare the adjusting entry at year-end for the estimated bad debt expense. (a) Based on an aging of its accounts receivable, Kyles Cyclery estimates that 3,200 of its year-end accounts receivable will be uncollectible. Allowance for Doubtful Accounts has a debit balance of 280 at year-end. Prepare the adjusting entry at year-end for the estimated uncollectible accounts.arrow_forwardA customer was unable to pay the accounts receivable on time in the amount of $34,000. The customer was able to negotiate with the company and transferred the accounts receivable into a note that includes interest, along with an up-front cash payment of $6,000. The note maturity date is 24 months with a 15% annual interest rate. What is the entry to recognize this transfer?arrow_forward
- The following select financial statement information from Vortex Computing. Compute the accounts receivable turnover ratios and the number of days sales in receivables ratios for 2018 and 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Vortex Computing if industry average for accounts receivable turnover ratio is 4 times and days sales in receivables ratio is 85 days?arrow_forwardMillennial Manufacturing has net credit sales for 2018 in the amount of $1,433,630, beginning accounts receivable balance of $585,900, and an ending accounts receivable balance of $621,450. Compute the accounts receivable turnover ratio and the number of days sales in receivables ratio for 2018 (round answers to two decimal places). What do the outcomes tell a potential investor about Millennial Manufacturing if industry average is 2.6 times and number of days sales ratio is 180 days?arrow_forwardWhich of the following would best explain an increase in receivables turnover? a. The company adopted new credit policies last year and began offering credit to customers with weak credit histories. b. Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables. c. To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.arrow_forward
- 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?arrow_forwardThe days' sales uncollected ratio is used to: Measure how many days of sales remain until the end of the year. Determine the number of days that have passed without collecting on accounts receivable. Identify the likelihood of collecting sales on account. D. Estimate how much time is likely to pass before the amount of accounts receivable is collected.arrow_forward
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