Question

1.) A chain of appliance stores, APP Corporation, purchases inventory with a net price of $450,000 each day. The company purchases the inventory under the credit terms of 1/15, net 40. 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.

2.)

Snider Industries sells on terms of 2/10, net 35. Total sales for the year are $600,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 40 days after their purchases. Assume a 365-day year.

1. What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the nearest whole number.

     days

2. What is the average amount of receivables? Do not round intermediate calculations. Round your answer to the nearest dollar.

   $  

3. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers paid on the 35th day? Do not round intermediate calculations. Round your answer to the nearest dollar.

3.)

1. 3/10, net 45.

     %

2. 2/10, net 45.

     %

3. 2/15, net 35.

     %

Answer 1

1. A chain of appliance stores, APP Corporation, purchases inventory with a net price of $450,000 each day. The company purchases the inventory under the credit terms of 1/15, net 40. 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.

Ans :

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

Average accounts payable = 450000 * 15 = $ 6750000

2. Snider Industries sells on terms of 2/10, net 35. Total sales for the year are $600,000. Thirty percent of customers pay on the 10th day and take discounts; the other 70% pay, on average, 40 days after their purchases. Assume a 365-day year.

A. What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the nearest whole number.

days sales outstanding = Average accounts receivable / average daily credit sales

average daily credit sales = total sales / 365

                     = 600000 / 365 = 1643.83

Average accounts receivable = (Receivable within 10 days less discount * weight) + (Receivable with in 40 days * weight )         

= ( (1643 .83*10) * 30% ) + ( (1643.83 * 40) * 70%)

         = 4832.86 + 46027.24 = 50860.10

days sales outstanding = 50860.10 / 1643.83 = 31

B. What is the average amount of receivables? Do not round intermediate calculations. Round your answer to the nearest dollar.

Average accounts receivable =(Receivable within 10 days less discount * weight) + (Receivable with in 40 days * weight )

         = ( ((1643 .83*10)-2%) * 30% ) + ( (1643.83 * 40) * 70%)

         = 4832.86 + 46027.24 = 50860

C. What would happen to average receivables if Snider toughened its collection policy with the result that all non-discount customers paid on the 35th day? Do not round intermediate calculations. Round your answer to the nearest dollar.

Average accounts receivable = (Receivable within 10 days less discount * weight) + (Receivable with in 35 days * weight )

         = ( ((1643 .83*10)-2%) * 30% ) + ( (1643.83 * 35) * 70%)

         = 4832.86 + 40273.835 = 45107

The average accounts receivable will decrease because, the collection period are reduced

3.)

A. 3/10, net 45.

Which means 3% of discount are provide for prompt payment with in 10 days, They not take the discount, they must pay with in 45 days

Cost of not taking discount = (365 / Total Period for Payment − Period of Discounted Payment ) * ( Discount % / ( 100% − Discount % )

Cost of not taking discount = (365 / ( 45 - 10 ) )* 3 / (100 - 3) = 365 / 35 * 3/97

                     = 10.43 * 0.0309 = 0.3225 = 32.25%

B. 2/10, net 45.

Cost of not taking discount = (365 / ( 45 - 10 ) )* 2/ (100 - 2) = 365 / 35 * 2/98

                     = 10.43 * 0.0204 = 0.2128 = 21.28%

C. 2/15, net 35.

Cost of not taking discount = (365 / ( 35 - 15 ) )* 2/ (100 - 2) = 365 / 20* 2/98

                     = 18.25 * 0.0204 = 0.3723 = 37.23%