Question
In: Finance
Solarius Trading Company is considering lengthening its credit period from 30 to 50 days. All customers...
Solarius Trading Company is considering lengthening its credit period from 30 to 50 days. All customers will continue to pay on the net date. The firm currently has $300,000 of sales per year, but believes that as a result of the proposed change, sales will increase to $360,000. Bad debt expense will increase from 3% to 5% of sales. The variable cost is 70% of sales. The firm has a cost of capital of 12%. Assume a 360-day year.
- What is the incremental cost of investment in accounts receivable?
- What is the incremental cost of the bad debts?
- Should Solarius lengthen its credit period from 30-50 days?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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customers will continue to pay on the net date. The firm currently
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(Note: Assume a 365-day year.)...
Lengthening the credit period Parker Tool is considering lengthening its credit period from 30 to 60...
Lengthening the credit period Parker Tool is
considering lengthening its credit period from 30 to 60 days. All
customers will continue to pay on the net date. The firm currently
bill $450,000 for sales and has $320,000 in variable costs. The
change in credit terms is expected to increase sales to $540,000.
Bad-debt expenses will increase from 1% to 1.5% of sales. The
firm has a required rate of return on equal-risk investments of
20%. (Note: Assume a 365-day year.)...
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Bad-debt expenses are expected to decrease from 1.7 % to 1.1% of
sales. The firm is currently selling 11,600 units but believes that
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A firm is contemplating shortening its credit period from 40 to 30 days and believes that,...
A firm is contemplating shortening its credit period
from 40 to 30 days and believes that, as a result of this change,
its average collection period will decline from 45 to 36 days.
Bad-debt expenses are expected to decrease from 1.5% to 1% of
sales. The firm is currently selling 12,000 units but believes that
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Question 1 The Kingsmill Furniture Company sells its products, offering 30 days’ credit to its customers....
Question 1
The Kingsmill Furniture Company sells its products, offering 30
days’ credit to its customers. Uncollectible amounts are estimated
to be equal to 2% of credit sales. At the end of the year, the
allowance for doubtful accounts is adjusted based on an aging of
accounts receivable. The company began 2017 with the following
balances in its accounts:
Accounts
receivable
$305,000
Allowance for doubtful accounts
(25,500)
During 2017, sales on credit were $1,300,000, cash collections
from customers were $1,250,000...
RNE Manufacturing Company sells its products offering 30 days’ credit to its customers. During 2018, its...
RNE Manufacturing Company sells its products offering 30 days’
credit to its customers. During 2018, its first year of
operations, the following events occurred:
Sales on credit
2,400,000
Cash collections from credit customers
1,405,000
Accounts receivable, end of year
$995,000
$30,000 of accounts were deemed uncollectible in 2018. The
company anticipates that $48,000 worth of ARs will ultimately
become uncollectible. Which of the following is not true regarding
RNE’s 2018 financial statements?
A. RNE reports bad debt expense of $48,000....
Swathmore Clothing Corporation grants its customers 30 days' credit. The company uses the allowance method for...
Swathmore Clothing Corporation grants its customers 30 days' credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2017, accounts receivable were $608,000 and the allowance account had a...
Swathmore Clothing Corporation grants its customers 30 days' credit. The company uses the allowance method for...
Swathmore Clothing Corporation grants its customers 30 days' credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 3% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2012, accounts receivable were dollar 586.000 and the allowance account...
Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for...
Swathmore Clothing Corporation grants its customers 30 days’
credit. The company uses the allowance method for its uncollectible
accounts receivable. During the year, a monthly bad debt accrual is
made by multiplying 2% times the amount of credit sales for the
month. At the fiscal year-end of December 31, an aging of accounts
receivable schedule is prepared and the allowance for uncollectible
accounts is adjusted accordingly.
At the end of 2020, accounts receivable were $588,000 and the
allowance account had...
Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for...
Swathmore Clothing Corporation grants its customers 30 days’
credit. The company uses the allowance method for its uncollectible
accounts receivable. During the year, a monthly bad debt accrual is
made by multiplying 2% times the amount of credit sales for the
month. At the fiscal year-end of December 31, an aging of accounts
receivable schedule is prepared and the allowance for uncollectible
accounts is adjusted accordingly.
At the end of 2020, accounts receivable were $596,000 and the
allowance account had...
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