Question

1) Determine the interest on the following notes:

(a)        $5,000 at 6% for 90 days.

(b)        $800 at 9% for 5 months.

(c)        $6,000 at 8% for 60 days

(d)        $1,600 at 7% for 6 months

2) The following data exists for Mather Company.

                                                                         2017                          2016

Accounts Receivable                                 $  80,000                    $ 70,000

Net Sales                                                     560,000                      410,000

Calculate the accounts receivable turnover and the average collection period for accounts receivable in days for 2017.

Answer 1

Question 1 Answer

Question No.	Notes Value	Interest	Days/Months	Months	Annual Interest	Interest
A	5000	6%	90 Days	3	"=5000*6/100=     300	"=300*3/12=    75
B	800	9%	5 Months	5	"=800*9/100=        72	"=72*5/12=      30
C	6000	8%	60 Days	2	"=6000*8/100=      480	"=480*2/12=    80
D	1600	7%	6 Months	6	"=1600*7/100=      112	"=112*6/12=    56

Annual Interest = Note Value* Interest / 100

Interest = Annual Interest* No. of months / 12

Question 2 Answer

A) Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivables

Average Accounts Receivables = (Opening Account Balance + Closing Account Balance)/2

Average Accounts Receivables = (70,000+80,000)/2 = 75,000

Accounts Receivable Turnover = 560,000/75,000 = 7.46667

B) Avegare collection period = Number of Days in an year / Accounts Receivables Turnover

Avegare collection period = 365 / 7.46667 = 48.88 i.e.,49 Days