Question
In: Accounting
Sky-High, Inc. pays company management bonuses at the end of each year if net income is...
Sky-High, Inc. pays company management bonuses at the end of each year if net income is equal to or greater than a specific percentage of net sales. However, in the past five years, that metric has not been reached. During these past five years, Sky-High has been lowering the requirements for granting credit to customers so that more sales can be generated. However, making those credit changes has caused the company’s uncollectible accounts percentage to rise substantially; for last year, it was 8.5% of the year’s net sales.
Before the past five years, Sky-High had been estimating uncollectible accounts at 3% of net sales. That rate had been effective in that no material adjustments needed to be made at any year-end. The CEO has asked you (the company accountant) to return to using that 3% percentage. His rationale is that the economy is strengthening and so uncollectible accounts should begin to decrease. If the 3% is used, all company management will receive a small bonus for this first time in five years.
1. Provide three alternatives related to accounts receivable that might help improve the company’s profit performance.
Solutions
Expert Solution
Following three alternatives related to accounts receivables that might help to improve the company's profit performance:
- Better credit terms: This might include practicing stringent credit terms. We advise making the credit more stringent and still giving more incentive to good customers. We can further incentivize the early payments and impose a small penal fee for late payments.
- Debtor Age Report: Debtor Age Report shall be prepared and policy of not extending any further credit to any customer having debtor age of 90 days shall be applied. Discount can also be given to old debtors to pay off their dues at a lower rate.
- Different Payment Modes: Facility of different payment modes such as online payment, cheques, cash shall be given to the customer to increase the flexibility.
- Hiring Collection Agents: Hiring collection agents to collect the dues might also help to improve the profitability.
ekkarill92 answered 2 years agoRelated Solutions
Sky-High, Inc. pays company management bonuses at the end of each year if net income is...
Sky-High, Inc. pays company management bonuses at the end of
each year if net income is equal to or greater than a specific
percentage of net sales. However, in the past five years, that
metric has not been reached. During these past five years, Sky-High
has been lowering the requirements for granting credit to customers
so that more sales can be generated. However, making those credit
changes has caused the company’s uncollectible accounts percentage
to rise substantially; for last year,...
Perpetuity A pays $100 at the end of each year. Perpetuity B pays $25 at the end of each quarter.
Perpetuity A pays $100 at the end of each year. Perpetuity B pays $25 at the end of each quarter. The present value of perpetuity A at the effective rate of interest is $2,000. What is the present value of perpetuity B at the same annual effective rate of interest i?
Blue Sky Company reported net income of $520,000 for the year ended 12/31/21. Included in the...
Blue Sky Company reported net income of $520,000 for the
year ended 12/31/21. Included in the computation of net income
were: amortization of a patent, $40,000; income from an investment
in common stock of Grape Inc., accounted for under the equity
method, $62,000; and amortization of a bond discount, $17,000. Blue
Sky also paid a $50,000 dividend during the year. The net cash
provided (used) by operating activities would be reported
at ______
For 20Y2, McDade Company reported a decline in net income. At the end of the year,...
For 20Y2, McDade Company reported a decline in net income. At
the end of the year, T. Burrows, the president, is presented with
the following condensed comparative income statement:
McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
1
20Y2
20Y1
2
Sales
$7,369,600.00
$6,580,000.00
3
Cost of goods sold
2,719,733.00
2,193,333.00
4
Gross profit
$4,649,867.00
$4,386,667.00
5
Selling expenses
$1,049,600.00
$820,000.00
6
Administrative expenses
658,050.00
535,000.00
7
Total operating expenses
$1,707,650.00
$1,355,000.00
8
Income...
For 20Y2, McDade Company reported a decline in net income. At the end of the year,...
For 20Y2, McDade Company reported a decline in net income. At
the end of the year, T. Burrows, the president, is presented with
the following condensed comparative income statement:
McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2
20Y1
Sales
$361,360
$304,000
Cost of goods sold
262,200
190,000
Gross profit
$99,160
$114,000
Selling expenses
$38,350
$26,000
Administrative expenses
21,470
16,000
Total operating expenses
$59,820
$42,000
Income from operations
$39,340
$72,000
Other revenue
1,580
1,300...
For 2016, Clapton Company reported a decline in net income. At the end of the year,...
For 2016, Clapton Company reported a decline in net income. At
the end of the year, S. Hand, the president, is presented with the
following condensed comparative income statement:
Clapton Company
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
1
2016
2015
2
Sales
$7,425,600.00
$6,720,000.00
3
Cost of goods sold
2,688,000.00
2,240,000.00
4
Gross profit
$4,737,600.00
$4,480,000.00
5
Selling expenses
$1,096,200.00
$870,000.00
6
Administrative expenses
636,300.00
505,000.00
7
Total operating expenses
$1,732,500.00
$1,375,000.00
8
Income...
For 2016, Clapton Company reported a decline in net income. At the end of the year,...
For 2016, Clapton Company reported a decline in net income. At
the end of the year, S. Hand, the president, is presented with the
following condensed comparative income statement:
Clapton Company
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
1
2016
2015
2
Sales
$7,369,600.00
$6,580,000.00
3
Cost of goods sold
2,719,733.00
2,193,333.00
4
Gross profit
$4,649,867.00
$4,386,667.00
5
Selling expenses
$1,049,600.00
$820,000.00
6
Administrative expenses
658,050.00
535,000.00
7
Total operating expenses
$1,707,650.00
$1,355,000.00
8
Income...
For 20Y2, McDade Company reported a decline in net income. At the end of the year,...
For 20Y2, McDade Company reported a decline in net income. At
the end of the year, T. Burrows, the president, is presented with
the following condensed comparative income statement:
Question not attempted.
McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
1
20Y2
20Y1
2
Sales
$16,800,000.00
$15,000,000.00
3
Cost of goods sold
11,500,000.00
10,000,000.00
4
Gross profit
$5,300,000.00
$5,000,000.00
5
Selling expenses
$1,770,000.00
$1,500,000.00
6
Administrative expenses
1,220,000.00
1,000,000.00
7
Total operating expenses
$2,990,000.00...
For 20Y2, McDade Company reported a decline in net income. At the end of the year,...
For 20Y2, McDade Company reported a decline in net income. At
the end of the year, T. Burrows, the president, is presented with
the following condensed comparative income statement:
McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
1
20Y2
20Y1
2
Sales
$7,750,400.00
$6,920,000.00
3
Cost of goods sold
2,791,067.00
2,306,667.00
4
Gross profit
$4,959,333.00
$4,613,333.00
5
Selling expenses
$1,187,500.00
$950,000.00
6
Administrative expenses
701,100.00
570,000.00
7
Total operating expenses
$1,888,600.00
$1,520,000.00
8
Income...
The year-end net income (in millions) for a company for the years 2004-2015 are shown in...
The year-end net income (in millions) for a company for the
years 2004-2015 are shown in the provided data set
(incomedata.xlsx). Graph the best chart which effectively displays
the income data over time.
Income Data:
Year
Net income
2004
25.2
2005
32.8
2006
31.5
2007
31.3
2008
34.8
2009
37.1
2010
62.1
2011
101.6
2012
75.5
2013
83.3
2014
117.4
2015
152.6
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