Question

Route Canal Shipping Company has the following schedule for aging of accounts receivable:

Age of Receivables April 30, 20X1
(1)	(2)	(3)		(4)
Month of Sales	Age of Account	Amounts		Percent of Amount Due
April	0–30	$	156,240	_______
March	31–60		78,120	_______
February	61–90		117,180	_______
January	91–120		39,060	_______
Total receivables		$	390,600	100%

a. Calculate the percentage of amount due for each month.

b. If the firm had $1,512,000 in credit sales over the four-month period, compute the average collection period. Average daily credit sales should be based on a 120-day period.

c. If the firm likes to see its bills collected in 36 days, should it be satisfied with the average collection period?

• Yes

• No

d. Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied?

• Yes

• No

Answer 1

This is the answer to part a where the percentage is calculated for different month of sales. Formula used to calculate is also given alongside

The average collection period is 7.75 days which is much less than the period in which the company is expecting to receive its payments.

The above picture contains answers to part c,d explaining the stance of the company in both the situations. For part c company should be satisfied because its average collection period is very less however if we ignore the average collection period then the company needs to think its collection schedule as major chunk(60%) of it balances are received after 30 days.