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 1 year ago

Next > < Previous

Related Solutions

Sky-High, Inc. pays company management bonuses at the end of each year if net income is...

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

Subjects