Problem 16-05 Accounts Payable A chain of appliance stores, APP Corporation, purchases inventory with a net...

Problem 16-05
Accounts Payable

A chain of appliance stores, APP Corporation, purchases inventory with a net price of $700,000 each day. The company purchases the inventory under the credit terms of 2/15, net 30. APP always takes the discount, but takes the full 15 days to pay its bills. What is the average accounts payable for APP? Round your answer to the nearest dollar.

Problem 16-06
Receivables Investment

Snider Industries sells on terms of 3/10, net 45. Total sales for the year are $820,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 50 days after their purchases. Assume 365 days in year for your calculations.

What is the days sales outstanding? Round your answer to one decimal place.
days
What is the average amount of receivables? Round your answer to the nearest dollar. Do not round intermediate calculations.
$
What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 45th day? Round your answer to the nearest dollar. Do not round intermediate calculations.
$

Solutions

Expert Solution

Solution 16-05:

Average accounts payable = Net inventory per day x Days in discount period

Average accounts payable = $700,000 x 15

Average accounts payable = $10,500,000

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Solution 16-06:

a. Days sales outstanding = 0.30 (10) + 0.70 (50)

Days sales outstanding = 38 days

b. Sales per day = Total sales/365

Sales per day = $820,000/365

Sales per day = $2,246.575

Average receivables = Sales per day x Days sales outstanding

Average receivables = $2,246.575 (38)

Average receivables = $85,369.86

Days sales outstanding = 0.30 (10) + 0.70 (45)

Days sales outstanding = 34.5 days

Average receivables = Sales per day x Days sales outstanding

Average receivables = $2,246.575 (34.5)

Average receivables = $77,506.85

Due to tight credit, sales may fall. It would further reduce the receivables. And some of the customers may not avail discount now because of reducing receivables.

jeff jeffy answered 1 month ago

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