Question

The Rinadale Company manufactures and sells very high-quality men’s business suits to major department store chains. To stimulate sales, Rinadale Company offered all new first-time customers a special deal. New customers could purchase up to $100,000 of suits using an open credit line. If the purchaser continues to make timely payments on any subsequent purchases, Rinadale Company defers the original purchase payment due date. If the purchaser fails to make additional purchases within sixty days or timely payments, the amount of the original purchase is immediately due along with interest of the prime rate plus 2.5% from the date of the original sale. Describe, in a report to the President, the recommended accounting treatment. Be sure that both situations are covered in your report: continuing purchases and failure to make purchases.

Answer 1

To

the President, xyz inc.

Sir,

We have been suffering from low sale of our high quality suit, which is our main activity to earn the operating income, we have low sale of this suit which forced us to make some changes based on sale price or additional promotional sales.

We have arrived with an expert analysis of our sale and price structure in order to boost our sale in term of quantity which consequently will increase our operating profit, The detailed analysis is as follow -

We have been suggested to increase customers open credit line on the purchase of upto $ 100,000, if such customer make any additional purchase within time frame ( 60 days) and does not default in any further payment of purchase due, such customer will be allowed to defer the payment on original purchase.

And if such customer makes any default in making payment for any subsequent sale or making subsequent purchase, the customer are to charged with 2.5% of interest on the original purchase on occuring of such default, and the amount became payable immediatly on occuring of default.

This plan (if effectively implemented) is likely to to boost the sale of suits by xyz quantity, along with boost in operating income of xyz amount.

However there will be additional requirement of working capital of xyz amount,

you are requested to consider the following plan based on analysis.

Thanks,

Comment- we have used some fictitious figures as xyz in order to make the report viable and impressive

Please comment me for any additional explanation on the given question

Thanks,